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China warns of ‘grim’ trade outlook after surprise exports fall | ASHARQ AL-AWSAT English Archive 2005 -2017
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In this photo taken Monday July 8, 2013, containers are piled at a port in Qingdao in eastern China's Shandong province. China reported Wednesday, July 10, 2013 that imports and exports both fell abruptly in June. The statistics are a new sign of weakness in the world's second-largest economy. (AP Photo)

In this photo taken Monday July 8, 2013, containers are piled at a port in Qingdao in eastern China’s Shandong province. China reported Wednesday, July 10, 2013 that imports and exports both fell abruptly in June. The statistics are a new sign of weakness in the world’s second-largest economy. (AP Photo)

Beijing, Reuters—China warned on Wednesday of a “grim” outlook for trade after a surprise fall in June exports, raising fresh concerns about the extent of the slowdown in the world’s second-largest economy and increasing the pressure on the government to act.

China’s reform-minded new leaders, including Premier Li Keqiang, have shown a tolerance for slower growth, while pressing ahead with efforts to revamp the economy for the longer term, but any continued slide in economic performance could test their resolve.

The customs data showed that exports fell 3.1 percent in June against forecasts for a rise of 4 percent, casting a shadow over second-quarter GDP figures due on Monday that are already expected to show growth slowed down to 7.5 percent as weak demand dented factory output and the pace of investment.

“Next week will be a testing time for the government in revealing just how much of a growth slowdown it is willing to tolerate,” Zhiwei Zhang, China chief economist at Nomura in Hong Kong, said in a client note.

The fall in exports was the first since January 2012. Imports fell 0.7 percent versus expectations for an 8 percent rise, while China had a trade surplus of $27.1 billion, the customs administration said, in line with the $27.0 billion expected.

The Australian dollar fell about a third of a cent after the data, reflecting worries about Chinese demand for Australia’s commodities, such as iron ore and coal.

The MSCI Asia-Pacific ex-Japan index also pulled back before recovering to stand up 0.77 percent in late Asian trade.

The June export figures followed a government crackdown on the use of fake invoicing that had exaggerated exports earlier this year, and may now reflect the true trade picture, customs officials said.

However the external environment remains weak and rising labour costs and a stronger yuan currency were discouraging exporters, customs said.

“China faces relatively stern challenges in trade currently,” customs spokesman Zheng Yuesheng told a news briefing. “Exports in the third quarter look grim.”

Exports to the United States, China’s biggest export market, fell 5.4 percent in June, while exports to the European Union dropped 8.3 percent.

HSBC Global Research said in a note that the external headwinds buffeting China will likely intensify, adding to the risks facing the economy.

“Beijing will likely fine-tune policy to avert a hard landing,” it said in a note.

Most economists have cut their forecasts for 2013 growth, but expect the government to achieve its target of 7.5 percent.

Exporters, meanwhile, said that they are feeling some pain, but are muddling through.

“Business is still difficult. Things will not worsen a lot in the second half, but neither will they improve a lot,” said Ye Lianghua, vice head of trading company Ningbo Cixi Export Import Co Ltd, in China’s prosperous eastern Zhejiang province.

“Now is definitely better than 2008 and last year. But please, no more yuan appreciation.”

Others noted rising labour costs, which could lead to layoffs. That would be a worry for the government, which fears social instability if there is large-scale unemployment.

“We still have difficulties in finding skilled workers,” said You Zhongguang, vice manager of Ningbo Xingwei Plastic Products Co., one of China’s biggest exporters of cutters and knives.

“The average wage is around 4,000 yuan ($650) (per month) now. Our wages have climbed 10 percent so far this year. Our business is relatively good, but the situation is not good for all companies. Many workers have left factories because the export market is weak.”

Complaints about the strength of the yuan and the possibility of job losses up the ante for Premier Li, who said on Tuesday he was aware of the risks to the economy.

“Macro-economic control should be based on present conditions and with an eye to the future to ensure the economic growth rate and employment levels do not slide below lower limits and consumer prices do not surpass the upper limit,” he was quoted by the official Xinhua news agency as saying during a visit to southern Guangxi Province.

“We must put more effort into structural adjustment, reforms and promote economic transformation and upgrading.”

Tim Condon, economist at ING Bank in Singapore, said 2013 economic growth of 7.5 percent was consistent with zero growth in exports.

“So yes, my sense is that the target can still be met,” he said. “But the risks are tilting to the downside.”

($1=6.1295 yuan)