World Economy
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China Economy Gets Weaker

China Economy Gets WeakerChina Economy Gets Weaker

Chinese imports fell for a seventh straight month in May while exports also sank, according to official data on Monday (Jun 8), as the world's second biggest economy shows protracted weakness even in the face of government easing measures.

The disappointing figures also come as leaders try to transform the economy from one where growth is driven by consumer spending rather than government investment and exports, AFP reported.

Imports slumped 17.6 percent year-on-year to $131.26 billion, the General Administration of Customs said in a statement. The decline was much sharper than the median forecast of a 10 percent fall in a Bloomberg News poll of economists and followed April's 16.2 percent drop.

"The May trade data ... suggest both external and domestic demand remain weak," said Julian Evans-Pritchard, an analyst with research firm Capital Economics, in a note.

Exports dropped for the third consecutive month, falling 2.5 percent to $190.75 billion, customs said, although that was better than the median estimate of a four percent fall in the Bloomberg survey.

The sharp decrease in imports meant the trade surplus expanded 65.6 percent year on-year to $59.49 billion, according to the data.

In yuan terms, imports fell 18.1 percent, exports decreased 2.8 percent and the trade surplus expanded 65.0 percent.

The figures provided further evidence that frailty in the Chinese economy, a key driver of world growth, has extended into the current quarter despite intensified government stimulus measures.

Gross domestic product (GDP) grew 7.4 percent in 2014, the lowest rate in nearly a quarter of a century, while the new year has shown few signs of a reversal in the slowing trend. GDP expanded 7.0 percent in January-March, the worst quarterly result in six years and weaker than final three months of 2014.

More Easing Needed

Beijing has set the target for the economy to grow by "around seven percent" this year, lower than its target for 2014, which was about 7.5 percent.

British bank HSBC's Purchasing Managers' Index (PMI), which tracks activity in factories and workshops and is seen as an important barometer of economic health, contracted for the third straight month in May and economists expect the shrinkage to extend into mid-year.

The government has warned that the manufacturing industry still faces multiple strains even as China's official PMI hit a six-month high in May.

Chinese leaders have said they are ready to accept slower but more sustainable growth, as they try to transform an investment-driven expansion model to one in which consumers take centre stage.

Still, authorities have stepped up stimulus efforts since late last year in a bid to ensure the slowdown does not get out of hand. The central People's Bank of China has cut interest rates three times since November and twice reduced the amount of cash banks must keep in reserve, along with other measures to inject liquidity into the market.

It has also lowered minimum downpayment levels on second houses and shortened the ownership period during which sellers are liable to a 20-percent capital gains tax on properties other than their main home in a bid to support the real estate market.

ANZ economists attributed the slump in imports this year to lower commodity prices and the "exchange rate effect", suggesting the impact of a stronger Chinese yuan.

"In our view, both consumption and investment are bound to pick up in Q2 and Q3 on fast implementation of fiscal policy and much eased monetary policy," they said in a report. "Thus, we may see a modest pick-up in Chinese imports soon," they said, adding that the government's recent cut in tariffs on various consumer products will contribute to the recovery.

 

Financialtribune.com