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Dec 11, 2012 06:40 PM IST | Source: ft.com

China trade suffers on global fears

Chinese exports slowed sharply in November in a reminder of the external headwinds that are blowing against the country's economic recovery.


Chinese exports slowed sharply in November in a reminder of the external headwinds that are blowing against the country's economic recovery.


Exports increased 2.9 percent year on year, down from an 11.6 percent pace in October and well short of forecasts for another similarly strong performance. Imports were unchanged from a year earlier, slowing from a 2.4 percent increase in October, though a pick-up in the volume of key commodity imports was consistent with more positive domestic investment and consumption data.


That resulted in a USD 19.6bn trade surplus in November for China, its lowest in five months.


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The weak trade figures were a reminder that for all of Beijing's efforts to rev up the economy, China is still exposed to the risks of sluggish demand in Europe and the US.


Smaller inflows through trade channels will act as a drag on the Chinese recovery, which has been driven primarily by a boost in government spending on infrastructure projects in recent months. But the negative impact may be limited since the role of exports in powering Chinese growth has steadily diminished since the global financial crisis.


"[The] export slowdown shows external demand faces uncertainty," Zhang Zhiwei, an economist with Nomura, wrote in a note. "Nonetheless, it does not change our view that growth is on track for strong recovery in the fourth quarter, as it is mostly domestically driven."


Domestic demand, both from investment and consumption, now accounts for more than 90 percent of China's gross domestic product.


On Sunday, China published a series of data showing that industrial output and retail sales growth hit eight-month highs in November.


The numbers reinforced expectations that after slowing for seven straight quarters, the world's second-largest economy is on track to finish 2012 with a moderate rebound towards 8 percent annual growth.


Since the middle of the year, Beijing has ramped up approvals for investment projects, particularly the construction of new rail lines and highways. The central bank has also pumped a large amount of short-term liquidity into the financial system through its aggressive use of open-market operations.


Ma Xiaoping, an economist with HSBC, said the weak export reading would encourage the Chinese government to continue its fiscal and monetary support for the economy.


"Lacklustre exports pose the biggest downside risk to China's ongoing recovery," she said. "As such, we expect Beijing to maintain its accommodative policy stance in the coming quarters."


Chinese exports to developed economies weakened across the board in November. Exports to the US fell nearly 3 percent year on year after rising 9 percent in October, while shipments to Europe declined 18 percent from a fall of 8 percent a month earlier.


The lack of growth in imports was explained in part by the fall in global commodity prices. Imports of both iron ore and crude - two commodities closely correlated to the Chinese economy - both increased in volume terms.


While the export outlook will continue to remain shaky in the coming months, a sustained recovery of the Chinese economy is expected to filter through into stronger imports.

"With [a] rising need for restocking, robust final [investment] demand and rebounding raw material prices, we expect import growth to quicken in coming months," said Lu Ting, an economist with Bank of America Merrill Lynch.

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