China’s exports fell the most since the global financial crisis, dealing another blow to confidence as Communist Party leaders meeting in Beijing assess the risk from the nation’s first onshore bond default.
Shipments abroad dropped 18.1 percent from a year earlier, the customs administration said in Beijing today, trailing the median estimate for a 7.5 percent increase in a Bloomberg News survey of 45 economists. Imports rose a more-than-projected 10.1 percent, leaving a trade deficit of $23 billion, the biggest in two years.
Distortions in the data from the Lunar New Year holiday and fake invoicing that inflated numbers last year make it harder to assess the true picture. As the nation chases a 7.5 percent annual growth target, set at this week’s meeting of the National People’s Congress, officials need to contain stresses in the financial system from the credit boom that began with stimulus measures in 2008.
“People see a lot of negative news coming out of China: growth momentum is slowing and when there is a default of one company they tend to think it’s going to be a systemic problem and spill over into the rest of the economy,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “These numbers may support their negative views, that even external demand may not be that strong.”
Even so, the drop in exports isn’t as bad as it appears when taking into account the holiday, the inflated base of last year’s numbers, and a weather-related “soft patch” in the U.S. economy, said Ding, whose forecast of an 8.5 percent decline in sales was closest to the customs figure.
First Default
Shanghai Chaori Solar Energy Science & Technology Co. (002506), a maker of solar cells, yesterday became the first company to default in China’s onshore bond market after failing to pay full interest due. The number of publicly traded non-financial Chinese companies whose debt-to-equity ratios exceed 200 percent has jumped 57 percent since 2007, according to data compiled by Bloomberg.
China’s benchmark Shanghai Composite Index (SHCOMP) this week had its first gain in three, rising 0.1 percent after a 2.7 percent drop the previous week. The yuan posted its biggest weekly increase since October, following a record decline of 1.4 percent in February, on speculation the central bank ceased engineering a decline in the currency to discourage appreciation bets.
Demand Deterioration
Trade will be a “clear drag” on growth in the first quarter and the yuan should weaken next week, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole SA in Hong Kong. “The trade data explain some of the downward pressure on the yuan in February -- it can be justified not only by central bank guidance but by actual deterioration of demand and supply in the forex market.”
Analysts’ estimates for February exports ranged from a drop of 8.5 percent to a 14.4 percent increase. The decline, after a 10.6 percent gain in January, was the biggest since August 2009.
The increase in imports compares with the median forecast for a 7.6 percent gain and a 10 percent advance in January. The trade deficit compared with the median projection for an excess of $14.5 billion and a $14.9 billion surplus a year earlier.
The customs administration attributed the data volatility to the impact of the Lunar New Year holiday, which started on Jan. 31 this year and Feb. 9 in 2013. Traders tried to “export fast” before the festival and “import first” after it, according to a statement on the agency’s website today.
True Picture
“We will probably have to wait for next month’s data to get a true picture of the export situation but we shouldn’t worry too much,” said Wang Tao, chief China economist at UBS AG in Hong Kong, one of three analysts to predict a decline in overseas sales.
Exports for January and February combined declined 1.6 percent, the most for that period since 2009, according to previously released data, and compared with a 23.6 percent gain a year earlier. Wang estimates the underlying growth rate was about 6 percent.
Economists were split last month over whether January’s trade figures showed a re-emergence of inflated export invoices to disguise capital inflows after authorities started a crackdown in the second quarter of last year. The yuan’s decline last month may help squeeze out the practice, according to Australia & New Zealand Banking Group Ltd.
“The trade figures will become more real in the coming months” as the currency has “become much more volatile and less predictable than before,” ANZ China economists led by Hong Kong-based Liu Li-Gang wrote in a report today.
Yuan Band
The yuan fell last month amid speculation the central bank was engineering a decline in preparation for widening its trading band against the dollar. The People’s Bank of China included an “orderly” broadening of the band among its 2014 policy goals last month.
The trade growth target for this year is 7.5 percent, the National Development and Reform Commission said in its annual work report to the legislature this week. China is confident it can achieve the goal, Commerce Minister Gao Hucheng said yesterday at a briefing.
The statistics bureau will tomorrow provide data on February inflation and factory-gate prices, followed by January-February industrial production, retail sales and fixed-asset investment on March 13. The central bank will publish data on February credit and money supply over the next week.
To contact the reporter on this story: Rachel Butt in Hong Kong at rbutt4@bloomberg.net
To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net Nerys Avery, Nicholas Wadhams
News Source: www.businessweek.com
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