China’s trade deficit narrows as signs of stabilization emerge

BEIJING, Sept 7 (Reuters) – China’s exports and imports extended their decline in August as the twin pressures of weak foreign demand and weak consumer spending at home squeezed businesses in the world’s second-largest economy, although the decline was slower than expected.

While the trade numbers followed a run of other indicators showing a possible stabilization in China’s downturn, they were far below the growth economists had expected earlier this year when the government dropped its strict COVID restrictions.

Exports fell 8.8% in August after falling 14.5% in July, beating a Reuters poll forecast of 9.2%, customs data showed on Thursday. Meanwhile, imports contracted 7.3%, a slower-than-expected 9.0% decline and a 12.4% drop last month.

China’s economy is at risk of missing Beijing’s annual growth target of 5% as authorities wrestle with a worsening asset slump, weak consumer spending and falling credit growth, prompting analysts to downgrade forecasts for the year.

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“The trade data is somewhat better, but I don’t think we should read too much into it: trade is still contracting,” said Frederic Newman, HSBC’s chief Asia economist.

“There is a sign of stabilization here, but I think there is still a long way to go,” he added.

Beijing has announced a series of measures to boost growth in recent months, with the central bank and top financial regulator last week easing some borrowing rules to help homebuyers.

But analysts caution that these measures may have little impact as the labor market recovery slows and household income expectations remain uncertain.

Containers are seen at Yangshan Deep Water Port in Shanghai, China on October 19, 2020. REUTERS/Aly Song/File photo Get license rights

“Despite some progress, the figures suggest headwinds persist,” said Zhou Hao, chief economist at Gutoi Junan International. “Looking ahead, whether China’s trade growth has already bottomed out will depend on a number of factors, the most important of which is domestic demand.”

Governments around the world are nervous about China’s economic slowdown, with many exporting countries heavily dependent on the market for the country’s growth.

South Korean exports to China, a leading indicator of the latter’s imports, fell by a fifth last month, down from 27.5% a month earlier, another nod to conditions prevailing in China.

Trade with the US, Southeast Asia and Australia declined.

However, trade with Japan fell sharply, with China’s exports to its neighbor falling 20% ​​year-on-year in August, while imports worsened 17%.

Policymakers in Tokyo fear China’s deepening economic woes will hit Japan’s fragile recovery, especially if Beijing fails to boost demand with meaningful stimulus.

Crude oil exports to China were up 31% in August from a year ago and up 21% in July, while soybean imports in August also rose 31% from a year ago, boosted by cheaper prices in Brazil.

While some analysts saw signs of stability in the data, investors were unimpressed with the yuan hitting a 10-month low and the Australian dollar, seen as a proxy for Chinese growth, weakening after the data.

China posted a trade surplus of $68.36 billion in August, compared to an estimate of $73.80 billion and $80.6 billion in July.

“Due to the low floor at the end of last year, exports are more likely to return to growth at the end of this year,” said Ni Wen, economist at the Huabao Foundation.

Reporting by Joe Cash, Ellen Zhang, Liangping Gao and Beijing Newsroom; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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Joe Cash covers China’s economic affairs, domestic fiscal and monetary policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Before joining Reuters, he worked on UK and EU trade policy in the Asia-Pacific region. Joe studied Chinese at Oxford University and speaks Mandarin.

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