Disappointing trade data signal deep woes in China’s economy
The Chinese trade data released by the General Administration of Customs on Oct.13 displayed unsatisfactory figures, hinting an underlying panic in both the domestic Chinese market and its impact abroad. The export figures in the world’s second largest economy fell by 10 percent, in dollars, from September 2015 to September 2016, and imports shrank unexpectedly by 1.9 percent, a sudden shift after it was up 1.7 percent in August.
This shows a shrinking level of demand both home and abroad. The Chinese exports’ estimate is expected to fall around 3 percent due to a poor demand for Chinese goods in all major markets including the United States, Europe and Asia.
The weak data is an indicator of the low level of consumption as well as concerns over the depreciation of the yuan against the dollar, which is at a six-year low. The Chinese markets shrugged off figures showing the alarming rates. The Shangai Composite Index was up by 0.09 percent and gained 0.241 percent after briefly slipping into the negative territory. Hong Kong’s Hang Seng Index remained under pressure and was down by 1.27 percent.
This creates panic over the strength of the Chinese currency, which is currently facing a 3 percent depreciation of the yuan against the dollar and a 6 percent decrease against the broader basket of currencies. The figures are expected to face a gradual decline as opposed to a sudden change that could scare away investors. The decline in investors will increase capital outflow and spur financial instability that could deepen the current crisis.
This led to a trade surplus of $41.9 billion—the lowest in the past 6 months—much to the dismay of global markets where the average analyst expectation was set at nearly $53 billion. This figure raises concerns on a global level about the projection of other September trade data that is set to follow along with the third-quarter GDP figure.
In September, the World Trade Organization cut its future forecast of expected trade growth by more than a third to 1.7 percent. This was due to uncertainty over the Chinese economy fueled by low levels of consumption in the U.S. market for Chinese goods.
The trade data released just days before the announcement of the country’s quarterly GDP figures disrupted global markets and disquieted the outlook for China’s economic growth. This aftermath of Chinese trade data was followed by weak South Korean trade data figures. After the data was released, Asian stocks performed poorly, closing at a three-week low. The poor performance shadowed the international arena where the U.S. stock futures and treasury yields traded low.
The recent level of performance raises anticipation of whether the year-end shopping season would change the current downturn momentum. According to consensus estimate, Chinese exports are expected to further fall by 3 percent in the following year.
Unlike the exports, the fall in import figures came as a shock. Just a month back in August, imports were up by 1.5 percent, the first in the past two years.
The positive figures in August were a result of the construction boom led by an increase in demand for coal and commodities like iron ore.
China is not self-sufficient and is the largest importer where it consumes nearly 40 percent of the global copper supply. The price of copper has been falling recently and is still one of the most oversupplied commodity. Due to the lack of supply cuts and the stagnant level of demand, the best-case scenario copper producers can hope for are prices to be range-bound. Investors lack reason to push prices to $5,000 per metric ton until the end of this year.
Recently, China’s economy picked up after a top-level initiative was taken to create a better outlook in the upcoming years. The Chinese government made a decision to increase infrastructure spending, which contributed about 8.6 percent of the total GDP, and to pursue an “accommodative monetary policy.”
Even though the Chinese economy was predicted to improve with the recent recovery in domestic demand, the recent figures have investors around the world worried of the level of stability in the Chinese markets. Is the recent figure representative of the Chinese markets losing momentum?
Immediately a day after the stumble in markets worldwide, the global markets rose after official data showed an increase in China’s factory output prices for September.