Instant View - China's November imports fall unexpectedly, export growth eases

BEIJING (Reuters) - China's imports unexpectedly fell 6.7 percent in November from a year ago, far below forecasts for a 3.9 percent gain in an weak performance that is likely to stoke concerns about the health of the world's second-largest economy and add pressure on Beijing to roll out more stimulus measures.

Exports were also much weaker than forecast, growing 4.7 percent versus expectations of 8.2 percent.

KEY POINTS

Exports +4.7 percent y/y (forecast +8.2 percent, prev month +11.6 percent)

Imports -6.7 percent y/y (forecast +3.9 percent, prev month +4.6 percent)

Trade surplus $54.5 billion (£35 billion)(forecast surplus $43.5 billion, prev month $45.4 billion)

COMMENTARY

LOUIS KUIJS, ECONOMIST, RBS, HONG KONG:

"Export growth is pretty subdued, which is in line with export data from South Korea and some other indicators from the region. Exports from Asia are quite weak in November and that's putting some cold water on hopes of firming up of the global trade cycle.

“This kind of data is a little bit of a headache for the central bank when it thinks about the currency because on the export side we still have pretty subdued data. So from the economic growth perspective and how can the currency support that, you would want to see a weaker currency.

“On the other hand, we have another record $54.5 billion trade surplus in November. On our projections in 2015, we’re going to get a current account surplus of close to $400 billion and that kind of surplus will become again an issue in how the PBOC thinks about the currency, not just because of economic and monetary factors within China but also because of how this plays out politically internationally.”

"If you think about domestic demand in China the two components that are most import intensive are both very weak. They are real estate, which drives a lot of commodity imports and corporate investment, which drives capital goods imports, both of these are particularly weak."

JULIAN EVANS-PRITCHARD, ECONOMIST, CAPITAL ECONOMICS:

"Export growth was significantly weaker than expected. The fall in growth partly reflects the easing of distortions caused by the round-tripping of precious metals to avoid capital controls, which inflated the trade figures in previous months. That said, the magnitude of the fall suggests that underlying export growth has weakened, too.

"Import growth fell even more sharply. The easing of round-tripping is likely to have played a role here too. And falling commodity prices, which will have weighed on the value of commodity imports, is almost certainly to blame as well. But the sharp fall also hints at a further cooling of domestic demand.

"Despite today’s data, we still expect exports to fare reasonably well going forward given that global growth looks set to continue to recover next year. In contrast, import growth is likely to remain weak given the ongoing structural slowdown in investment."

DARIUSZ KOWALCZYK, ECONOMIST, CREDIT AGRICOLE CIB, HONG KONG:

"The November trade surplus surged to $54.5 billion, substantially above consensus, which is 61 percent up year-on-year and will directly add to fourth-quarter GDP growth.

"However, the details of the trade report are weaker than expected. Export growth slowed to 4.7 percent year-on-year from 11.6 percent year-on-year, likely as over-reporting was curbed by administrative action and also on base effects.

"Shockingly, imports contracted by 6.7 percent year-on-year – their weakest performance since the Lehman crisis (except the volatile Lunar New Year – related period).

"This is partly a reflection of lower commodity prices and base effects, but these two factors cannot fully explain the weak import number and we have to assume that poor domestic demand has played a part. This means that pressure will rise on the government to do more to stimulate growth.

"We expect a reserve requirement ratio cut in December, introduction of reverse repos this week, and another rate cut in the first quarter. The yuan should rise further on the data."

LINKS

For details, see the customs website (in Chinese), http://www.customs.gov.cn

MARKET REACTION

The CSI300 Index of leading shares in Shanghai and Shenzhen edged higher to be up 2.2 percent. The yuan (CNY=CFXS) softened on the dollar to 6.1505. The Australian dollar (AUD=D4) gave up early gains to stand slightly lower on the day.

BACKGROUND

-- China's central bank unexpectedly cut interest rates on Nov. 21 for the first time in more than two years to shore up flagging economic growth.

-- Most economists believe it is not a question of whether Beijing will roll out more support measures but when, with many expecting both further interest rate cuts and reductions in banks' reserve requirement ratio (RRR).

-- China's government is targeting a rise in total trade this year of 7.5 percent. Total trade grew 7.6 percent in 2013, below the official target of 8 percent.

-- China's exports have been sluggish for much of this year but recently began showing signs of life thanks to firmer global demand and government incentives for exporters.

-- Imports have also been weak, highlighting sluggish domestic demand, but recent data had pointed to some signs of stabilisation.

(China economics team; Editing by Kim Coghill)