China's Sept exports fall after recent positive signs

Beijing

CHINA'S exports fell by a sharp 10 per cent last month, raising concerns about the strength of the recent rebound of the world's second largest economy. Imports also under-performed, falling by 1.9 per cent.

The disappointing figures come after a string of positive data metrics, such as purchasing managers' indices (PMIs), auto sales and a rebound of both imports and exports over the past two months.

In August, the country's imports beat expectations, breaking a two-year losing streak to post a 1.5 per cent annual increase.

Customs spokesman Huang Songping said on Thursday in Beijing: "There remain obvious obstacles facing China's foreign trade development. World growth remains sluggish and global trade lacks effective support."

The country's trade surplus fell to US$42 billion, down by around US$10 billion month on month.

Julian Evans-Pritchard, an economist with Capital Economics, said: "China's exports weakened last month on the back of subdued external demand. Still-sluggish global demand appears to blame. Overall, today's data is a reminder that China faces a challenging external environment, which is likely to keep export growth subdued in the coming quarters".

China's economy had shown signs of stabilising in the past two months as government-led stimulus measures kicked in. This week, an industry group said auto sales grew at their fastest rate in three years last month.

But Thursday's trade numbers were a reminder that the economy remained vulnerable and hobbled by issues such as debt, over-capacity and the overhaul of state-owned enterprises still unaddressed.

Looking ahead, analysts said they expect the Chinese government to pursue loose fiscal and monetary policies to further support growth.

Broken down, the export numbers were dragged down by demand for lower value-added goods (such as clothing and shoes) from European and American markets.

Global demand has also been affected by the upcoming US elections and the Brexit vote in the middle of the year.

Julia Wang, an economist with HSBC, said: "There are still a number of headwinds to global growth and, in particular, business investment, which may spell further weakness for China's export sector."

Imports are proving more stable, analysts say, with imports of commodities such as coal, copper and iron ore on the rise. This points to strong domestic demand.

The weak export data will make a stronger case for the central bank to further devalue the yuan, analysts say.

The Chinese currency has been under pressure with billions of yuan leaving the country as investors seek to diversify investment options.

This week, the yuan hit a six-year low against the dollar, with the rate expected to fall further this year. So far this year, the Chinese currency has depreciated by about 3 per cent against the dollar and 6 per cent against a broader basket of currencies.

Mr Evans-Pritchard said: "The continued underwhelming performance of Chinese exports adds weight to our view that the People's Bank will maintain its recent policy of gradual trade-weighted renminbi depreciation in coming quarters."

The Hong Kong stock market closed down 1.61 per cent on the news, but Shanghai rebounded, recovering earlier losses to end the day up 0.09 per cent.