Sunday, 18 January 2015

China's weak foreign trade growth suggests more policy easing

BEIJING - China's foreign trade increased 3.4 percent year on year in 2014 denominated in US dollars, significantly lower than the 7.6 percent rise in 2013 and the 7.5 percent target, indicating more room for monetary easing.

Denominated in US dollars, exports rose 6.1 percent in 2014, while imports increased 0.4 percent, Zheng Yuesheng, spokesman for the General Administration of Customs (GAC) announced on Tuesday.

Denominated in Chinese yuan, exports increased 4.9 percent to 14.3 trillion yuan, while imports fell 0.6 percent to 12.04 trillion yuan. The foreign trade surplus widened to 2.35 trillion yuan in 2014, an increase of 45.9 percent.

The leading export index slid for the third month to 40.1 in December 2014, the lowest since December 2013, and a pessimistic prospect for exports in 2015.

Zheng Yuesheng attributed the weak foreign trade growth in 2014 to a slow global recovery, less competitive Chinese made products, less foreign direct investment (FDI) in the manufacturing sector and falling commodity prices.

The average price of China's iron ore imports dropped 23.4 percent in 2014, while crude oil and soy bean import slid 6.1 percent and 6.8 percent,respectively, Zheng said.

"With domestic demand still depressed, policy easing is still needed," said Bob Liu, an analyst at the China International Capital Corp (CICC), adding that the government may set a lower export growth target for 2015.

Liu Ligang, chief Greater China economist at ANZ Banking Group agreed. that weak domestic demand and investment led to weak growth.

Trade with the European Union, China's biggest trade partner, edged up 8.9 percent to 3.78 trillion yuan, while trade with the United States, the second-biggest partner, rose 5.4 percent to 3.41 trillion yuan. Trade with third-largest partner ASEAN, rose 7.1 percent to 2.95 trillion yuan.

Trade with Japan contracted 1 percent 1.92 trillion yuan.
For 2015, economists believe that the foreign trade growth will continue the downward trend.

Bob Liu predicted that both export and import growth will fall in January, but export growth should still be much stronger than imports. The trade surplus is expected to remain high in January, before experiencing a seasonal decline in February and March.

His point was echoed by a research note from Merrill Lynch, forecasting that the elevated trade surplus could be sustained for several months on falling crude oil prices, while export growth could soften on a strong RMB.


Subdued price levels point to more policy easing

China's consumer inflation remained weak in December while price declines at the factory gate level continued to deepen, suggesting weakness in the world's second-largest economy but will create space for policy makers to take easing measures.

Growth in the consumer price index (CPI), the main gauge of inflation, rebounded to 1.5 percent in December from November's 1.4 percent, its slowest increase since November 2009, the National Bureau of Statistics (NBS) said Friday.

On a monthly basis, December's CPI edged up 0.3 percent against the previous month, reversing the downward trend experienced since September.

This small pick-up in December's consumer inflation was mostly driven by food prices, said Chang Jian, Barclays chief China economist.

Food prices, which account for about one-third of the CPI calculation's weighting, rose 2.9 percent from a year ago in December, compared to 2.3 percent the previous month.

Growth in non-food prices, however, fell to a 56-month low of 0.8 percent, led by falling transportation and housing costs, Chang said.

China's consumer prices grew 2 percent in 2014 from one year earlier, well below the government's 3.5 percent target set for the year. It was also below the 2.6 percent growth registered in 2013.

Producer price index (PPI) slumped 3.3 percent in December from one year earlier, the sharpest fall in more than two years, and the decline deepened from November's 2.7 percent fall.

Tumbling oil and other commodity prices have extended the run of producer-price declines to a record 34 months.

PPI fell 1.9 percent year on year in 2014.
The easing inflationary pressure will give the central bank more room to initiate measures to support growth.

In November, the central bank cut benchmark interest rates for the first time since the summer of 2012. Analysts are divided over whether more rate cuts would follow in the coming months as the 2014's growth figures are likely to register its slowest pace in more than a decade.

Chang forecast two additional cuts in benchmark interest rates, by 25 basis points each time, in the first half of this year, as well as three cuts in the reserve requirement ratio (RRR), by 50 basis points each time, throughout the year.

Liu Liu, analyst of China International Capital Corp., expects the central bank to cut interest rates once and lower RRR four times this year likely in the first half.

However, Liu Ligang,chief Greater China economist at ANZ Banking Group., said the central bank appeared to be reluctant to cut RRR to counter falling prices and economic slowdown.

The Chinese government should use both structural reform measures and monetary policy tools to head off the risk of deflation, especially when domestic demand remains weak and commodity and energy prices continue to fall, Liu Ligang wrote in a report to clients.

Final figures for last year's gross domestic product (GDP) are slated for released on Jan 20.

Resources: China Daily