China Exports Slow as Europe Dims Outlook

By Bloomberg News - Nov 10, 2011 10:24 AM GMT+0700

China’s exports rose at the slowest pace in almost two years in October as Europe’s deepening debt crisis crimped demand, adding pressure on policy makers to support growth in the world’s second-biggest economy.

Overseas shipments rose 15.9 percent from a year earlier, customs bureau data showed today. The trade surplus was $17 billion, lower than all 24 estimates in a Bloomberg News survey. Imports climbed a more-than-forecast 28.7 percent.

Asian stocks slumped after a jump in Italian bond yields fanned concern Europe’s currency union will unravel and cause a recession in China’s largest export market. Chinese data yesterday showing inflation slowed, home sales fell and industrial output cooled have added to the case for the government to ease credit controls and roll out more measures to support growth.

“The weakness in exports is consistent with the external slowdown and we expect further declines in the growth rate,” said Ken Peng, a senior economist with BNP Paribas SA in Beijing. “Domestic demand growth is weakening so the strength in imports is likely temporary and we may get a sharp downturn next month.”

Stocks in China extended their decline after the data. The benchmark Shanghai Composite Index fell 1.3 percent to 2,492.12 at 11:06 a.m. local time. The yuan was trading 0.2 percent lower at 6.3518 in Shanghai.

European Crisis

Elevated unemployment and faltering expansion in the U.S. and Europe threaten to sap demand for exports that accounted for a quarter of China’s output last year.

Overseas sales were $157.5 billion in October, the lowest in five months, and had the smallest year-on-year increase since gains resumed in December 2009 after the global financial crisis, excluding holiday distortions. The growth rate compared with a median estimate of 16.1 percent in a Bloomberg News survey of 25 economists.

Import growth was higher than every estimate in a Bloomberg survey of 25 economists that had a median forecast of 22.2 percent. The median for the trade surplus was $25.8 billion.

“The robust growth in imports suggest both resilience in the Chinese economy and some initial positive impact of policy fine-tuning,” said Lu Ting, a Hong Kong-based economist with Bank of America Corp.

China’s purchases from the European Union rose 28.2 percent in October from a year earlier and imports from South Korea gained 21 percent, customs data showed.

Italian Slump

Investors yesterday propelled Italy’s 10-year bond yield to close at a euro-era high of 7.25 percent, escalating the region’s crisis after the promised exit of Prime Minister Silvio Berlusconi failed to convince them that his country can slash Europe’s second-largest debt burden.

China’s export growth to the European Union slowed to 7.5 percent in October from a year earlier. Sales to Italy slumped 18 percent from a year earlier, the second straight decline.

Orders from U.S. buyers at the Canton trade fair held in October and November in Guangdong province dropped 24 percent from a year earlier and those from European buyers fell 19 percent, organizers said last week. Chinese solar-panel maker Trina Solar Ltd. cut its forecast for 2011 shipments on Nov. 3 because customers in Europe have had difficulty financing projects.

China may slow the yuan’s appreciation against the U.S. dollar to 3 percent to 4 percent until the end of 2012 from an annualized pace of 5 percent this year, London-based Capital Economics Ltd. said in a Nov. 3 report. Citigroup’s Ding estimates gains will slow to 4 percent next year.

Slowing Yuan Gains

“The government may want to avoid allowing too much yuan appreciation as that would hurt exports,” Ding said. “But the currency will still rise as China wants to encourage imports and reduce the accumulation of its foreign-exchange reserves,” he said.

Premier Wen Jiabao said last month the government will fine-tune economic policies as needed to sustain growth amid a global slowdown. He also pledged to maintain a “basically stable” exchange rate.

--Victoria Ruan. With assistance from Ailing Tan in Singapore, Zheng Lifei and Huang Zhe in Beijing. Editors: Paul Panckhurst, Nerys Avery

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at +86-10-6649-7570 vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net