China’s Exports Decline for First Time in 7 Years

By Kevin Hamlin and Li Yanping

Dec. 10 (Bloomberg) -- China’s exports fell for the first time in seven years, more evidence that recessions in the U.S., Europe and Japan are driving the world’s fourth-largest economy into a slump.

Exports declined 2.2 percent in November from a year earlier, the customs bureau said in a statement on its Web site today. Imports plunged 17.9 percent, pushing the trade surplus to a record $40.09 billion.

The trade collapse intensifies pressure on China’s leaders to cut interest rates, extend a 4 trillion yuan ($581 billion) spending plan and let the yuan depreciate. China’s exports quadrupled after the country joined the World Trade Organization in 2001, helping to make it the fastest-expanding major economy and the biggest contributor to global growth.

“The figures are horrifying,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”

The yuan closed at 6.8633 against the dollar at 5:30 p.m. in Shanghai, from 6.8601 before the data was released.

Imports fell by the most since at least 1995, when Bloomberg data began, as commodity prices declined and weakness in manufacturing and construction cut demand for raw materials. The previous decline was seven years ago.

Economists exclude figures from January and February each year because of distortions caused by Lunar New Year holidays.

Yuan Depreciation

In October, exports rose 19.2 percent and imports climbed 15.6 percent. None of 18 economists surveyed on exports and 17 economists polled on imports predicted a decline in November.

“These are absolutely dreadful numbers,” said Mark Williams, an economist with Capital Economics Ltd. in London. “It will stoke speculation that the government will force a depreciation of the yuan. Further cuts in interest rates are pretty much inevitable.”

The value of exports was $115 billion, the lowest in eight months and down from a peak of $136.6 billion in July.

The yuan’s biggest one-day decline in three years on Dec. 1. prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.

Chinese leaders are meeting in Beijing this week to set economic policy after the central bank cut interest rates last month by the most in 11 years.

Borrowing Costs

The key one-year lending rate has fallen to 5.58 percent from 7.47 percent in September. The People’s Bank of China has also eliminated quotas limiting lending by banks.

At stake is the nation’s contribution to global growth, forecast by Merrill Lynch & Co. to be 60 percent next year.

China’s economy grew 9 percent in the third quarter, the weakest pace in five years. Producer-price inflation was the slowest in two years last month and foreign direct investment fell 36.5 percent from a year earlier, the government said in separate statements today.

The government may cut taxes to stimulate spending as it targets a minimum 8 percent increase in gross domestic product next year and the creation of 10 million jobs, the state-run China Daily newspaper reported Dec. 9.

Policy makers may also roll out measures to support the stock market after the CSI 300 Index fell 61 percent this year, Merrill Lynch & Co. said.

Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

Factory Riot

About half of China’s toymakers have shut down this year, with 7,000 workers losing their jobs when Smart Union Group (Holdings) Ltd. closed in Guangdong province in October.

Sacked workers rioted at another toy factory last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”

Policy makers will keep reducing rates, along with the amount of money that lenders are required to park with the central bank as reserves, said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Gains by the yuan against the dollar will stall at least through the first half of next year, he said.

The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week. Commerce Minister Chen Deming denied that China would rely on the currency to help exporters, saying that “the cause of the current problem with exports is shrinking demand, not problems with currencies.”

China’s currency has gained about 20 percent since a peg to the dollar was scrapped in 2005.

To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net;