Export Growth Slows in China

By Joe Cash

BEIJING (Reuters) – China's export growth slowed sharply in September, while imports also unexpectedly decelerated, undershooting forecasts by large margins. This suggests manufacturers are slashing prices to move inventory ahead of tariffs from several trade partners.

Export momentum had been a bright spot for the Chinese economy struggling with weak domestic demand and a property market debt crisis. This adds urgency for stronger stimulus measures.

Outbound shipments from the world's second-largest economy grew 2.4% year-on-year last month, the slowest pace since April. This missed a forecast 6.0% increase in a Reuters poll of economists and an 8.7% rise in August.

Imports edged up just 0.3%, missing expectations for a 0.9% rise, and this was softer than the previous growth of 0.5%. Weak data threatens future exports as about a third of China's purchases are parts for re-export, particularly in the electronics sector.

Zichun Huang, a China economist at Capital Economics, stated that while export growth showed some resilience, growing trade barriers could constrain the future. The European Commission recently voted to impose additional duties on Chinese electric vehicles, joining the U.S. and Canada in tightening trade measures against China.

China's overall trade surplus narrowed to $81.71 billion in September, down from $91.02 billion in August, and missed a forecast of $89.80 billion.

Manufacturing activity shrank sharply in September, with a recent factory owners' survey showing new export orders at their worst in seven months. Analysts believe previous months' strong export performance was due to factory owners slashing prices to attract buyers.

Despite forecasts for positive export growth in the fourth quarter, there are concerns due to slowing external demand. Wang Qing, chief macro analyst at Oriental Jincheng, noted that manufacturing activity remains below average for the past decade.

Domestic Demand Issues
Last week, the head of China's state planner expressed confidence in achieving the government's full-year growth target of around 5%. Chinese officials recently announced plans to ramp up debt issuance to assist local governments and support low-income earners. However, the lack of a specific dollar amount for the package prolongs investor uncertainty.

After the release of trade data, U.S.-listed shares of Canada Goose fell 4.4% following a Wells Fargo downgrade based on weak demand in China. Analysts predict a long recovery for consumer and business confidence, especially in the housing market.

On a positive note, China's iron ore imports rose 2.9% year-on-year, driven partly by hopes for improved demand in September and October, a peak construction season. Additionally, the country’s copper imports climbed from the previous month.

Despite new bank lending falling short of forecasts in September, household loans, including mortgages, increased to 500 billion yuan from 190 billion yuan in August. Zhiwei Zhang, chief economist at Pinpoint Asset Management, highlighted the significance of recent fiscal policy changes as critical for growth next year but noted that sustaining strong export growth could be difficult due to heightened trade tensions.