Bloomberg News

China Exports Rise With Inflation Leaving Stimulus Room: Economy

September 09, 2013

Port in Shanghai

Shipping containers are stacked at the Yangshan Deep Water Port in Shanghai. Exports to the U.S., China’s biggest market, and the EU, its second-largest, rose for a second month in August after a four-month drop, yesterday’s data showed. Photographer: Nelson Ching/Bloomberg

China’s exports increased more than estimated in August and inflation stayed below a government target, helping Premier Li Keqiang sustain a rebound in the world’s second-largest economy from a two-quarter slowdown.

Overseas shipments rose 7.2 percent from a year earlier, the General Administration of Customs said in Beijing yesterday. That exceeded the 5.5 percent median estimate of analysts surveyed by Bloomberg News. Consumer prices rose 2.6 percent, the statistics bureau said today, leaving room for extra stimulus if needed.

Chinese stocks rose to a three-month high as the data boosted confidence following Li’s support measures such as tax cuts for small businesses and extra spending on railways. The producer-price index fell by the least in six months while exports to the U.S. and European Union grew for a second month, underscoring improvements in demand inside and outside China.

“The PPI data today, along with yesterday’s trade numbers, showed fairly big improvement in both external and internal demand,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “They are in line with the economic recovery trend that we have been seeing since July.”

The Shanghai Composite Index gained 3.4 percent, the most since December, following 2 percent gains in each of the past two weeks.

Imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion, customs data showed yesterday. Exports rose 5.1 percent in July.

Sustained Growth

Li, in an opinion article today in the Financial Times, said the economy “will maintain its sustained and healthy growth,” with expansion around a 7.5 percent “lower limit” intended to ensure steady growth and employment. Commerce Minister Gao Hucheng said he’s confident the nation will meet its 8 percent target for trade gains for the year, according to a report yesterday on China National Radio.

The government is seeking to keep consumer-price gains within 3.5 percent this year. Li wrote that the level is in line with an “upper limit” of economic performance meant to prevent inflation.

The producer-price index (SHCOMP) fell 1.6 percent in August from a year earlier, after a 2.3 percent drop in July, the third straight deceleration of its decline.

“The low CPI inflation means that the new government still has spacious room for bolstering growth via implementing a mini fiscal stimulus and avoiding monetary tightening,” Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note today. The PPI report “suggests the economy has been recovering,” he said.

Economic Picture

Industrial output, retail sales and January-August fixed-asset investment data tomorrow will flesh out the picture of an economic rebound that started in July. The People’s Bank of China will also give lending, money supply and aggregate financing numbers this week.

The gain in August imports trailed the 11.3 percent median projection in a Bloomberg survey and July’s 10.9 percent jump.

The slowdown “reflects the weak economic recovery domestically,” said Hu Yifan, chief economist at Haitong International Securities Group in Hong Kong. “But we expect the trend to reverse in coming months, along with rising demand, on a series of supportive policies” announced by the government, she said.

In addition to speeding up investment in infrastructure, the government has cut taxes and boosted support for industries including energy conservation and technology. The State Council in July approved a free trade zone in Shanghai to trial economic and financial reforms.

Asean Exports

Exports to the U.S., China’s biggest market, and the EU, its second-largest, rose for a second month in August after a four-month drop, yesterday’s data showed. Shipments to the 10-member Association of Southeast Asian Nations jumped 30.8 percent although sales to Japan dropped for a seventh month.

The U.S. Federal Reserve said last week that the economy maintained a “modest to moderate” pace of expansion, and a manufacturing index from the Institute for Supply Management rose to a two-year high. In the euro area, an index of services and factory output for August climbed to the highest level since June 2011.

Improvements in overseas demand are helping Chinese exporters such as JinkoSolar Holding Co., which shipped 62 percent more panels in the second quarter than a year earlier. The Shangrao, Jiangxi province-based company raised its shipment forecast for 2013, Chief Executive Officer Chen Kangping said on an Aug. 14 earnings call.

Trade Surplus

China’s August trade surplus was $28.61 billion, according to a customs statement although a separate table put the excess at $28.52 billion. That was the highest this year and takes the surplus for the first eight months to $154.2 billion, about 28 percent more than a year earlier.

The pickup in the surplus suggests yuan appreciation pressure will continue, economists Liu Li-Gang and Hao Zhou at Australia & New Zealand Banking Group Ltd. (ANZ) said in a note. Even so, with turbulence in emerging market economies, the central bank will probably maintain the stability of the exchange rate, they wrote.

The PBOC has reined in yuan gains, helping exporters. The currency rose about 0.3 percent against the U.S. dollar in the past three months, slowing from an advance of about 1.5 percent in the first half of the year and about 2 percent in the second half of 2012. The currency today was little changed at 6.1210.

Stronger Momentum

“We’re clearly seeing stronger external demand momentum as manufacturing in the U.S. and European Union recover and that’s going to become a stronger driver of China’s growth,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing. “But if policy makers in China see this recovery as meaning they don’t need to add stimulus domestically or even withdraw stimulus, that could be bad news.”

Xu, who last week raised his 2013 full-year economic growth estimate for China to 7.6 percent from 7.5 percent, said the moderation in momentum suggested in the August import numbers may temper optimism about the strength of domestic demand.

Elsewhere in the Asia-Pacific region, Japan said its economy grew an annualized 3.8 percent in the second quarter, faster than previously estimated, aiding Prime Minister Shinzo Abe’s reflation campaign. Taiwan said exports rose 3.6 percent in August from a year earlier, less than estimated, while imports (CNFRIMPY) dropped for a second month.

In North America, Canada reports building permits for July and Mexico reports August inflation data.

Growth Forecasts

Goldman Sachs Group Inc. last week raised its estimate for China’s economic growth for the third and fourth quarters, citing improving global demand and a stronger-than-expected domestic industrial recovery. JPMorgan and Deutsche Bank AG raised their growth forecasts over the past month, bolstering optimism Premier Li will meet the government’s 7.5 percent target for expansion this year.

Li may cut the annual growth target to 7 percent next year, although the actual pace of expansion will be higher, Fan Jianping, chief economist at the State Information Center under the National Development and Reform Commission, said in an interview in Shanghai on Sept. 7.

The drop would be in line with the goal set in the country’s 2011-2015 five-year plan for average expansion of 7 percent a year, Fan said.

To contact Bloomberg News staff for this story: Hu Shen in Beijing at hshen33@bloomberg.net; Xin Zhou in Beijing at xzhou68@bloomberg.net

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


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