China’s Exports Rise at Slowest Pace in Two Years as Europe Crisis Deepens

By Bloomberg News - Nov 10, 2011 2:24 PM 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 cut taxes.

“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.”

The MSCI Asia Pacific Index declined 3.1 percent at 3:16 p.m. in Tokyo, poised for its biggest drop since Sept. 22. The benchmark Shanghai Composite Index fell 1 percent to 2,498.33 at 2:07 p.m. local time. The yuan was trading 0.1 percent lower at 6.3451 per dollar in Shanghai.

Asia Slowdown

Overseas sales were $157.5 billion in October, the lowest in five months. That was also 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 survey.

Europe’s malaise is taking its toll on other Asian economies. South Korea’s exports rose the least in two years last month and may ease further in the fourth quarter, according to the Ministry of Knowledge Economy. A slowdown in overseas sales contributed to the smallest quarterly growth in Taiwan’s economy in two years, the government said Nov. 1.

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. The export growth slowdown comes as a government campaign to rein in inflation and property prices has led to a credit squeeze among smaller companies and moderating gains in industrial output.

Premier Wen Jiabao said last month the government will fine-tune economic policies as needed to sustain growth although he pledged to maintain curbs on real estate.

Italy 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.

Gains in exports will slow to 13.5 percent in the fourth quarter from 20.5 percent in the third quarter and could ease to 10 percent next year, according to estimates from Lu Ting, a Hong Kong-based economist with Bank of America Corp.

Break on Growth

“A weak outlook in advanced economies will continue to feed into China’s trade data, acting as a break on growth and potentially forcing the authorities’ hand in rolling out monetary easing,” Alistair Thornton and Ren Xianfang, Beijing- based economists with IHS Global Insight said in a note today.

Most economists expect China to loosen fiscal or monetary policy without cutting interest rates as inflation stays above the government’s full-year target of 4 percent, a Bloomberg News survey showed this week. HSBC Holdings Plc said yesterday that “targeted easing” may include measures to support smaller businesses and the construction of public housing and infrastructure.

Import growth was higher than every estimate in a Bloomberg survey of 25 economists. 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 show.

Inventory Buildup

Iron-ore imports fell to an eight-month low while copper imports rose to the highest level in 17 months, customs data show. Crude oil purchases increased 79 percent in October from a year earlier in value terms and 27 percent in volume terms, according to Societe Generale SA.

“This may reflect inventory building and robust domestic demand, with importers taking advantage of the sharp correction in global commodity prices,” said Chang Jian, a Hong Kong-based economist with Barclays Capital.

October’s trade surplus brings the excess for the year to $124 billion, a 15.4 percent drop on the same period last year, the customs bureau said today.

“Trade’s contribution to growth may be negative in the fourth quarter, which will increase the odds of policy easing,” said Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong. “With inflation and the trade surplus declining, there is less need for yuan appreciation and currency gains should slow.”

China may slow the pace of yuan gains 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.

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