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China trade figures defy predictions of continuing decline

The better than expected levels of imports and exports show benefits of lower currency.

Nevil Gibson
Thu, 14 Jan 2016

China’s better-than-expected trade figures in December have raised questions over the impact of capital flight controls and export incentives.

Exports declined 1.4% over the year against forecasts of an 8% drop and a 6.8% decline in November.

Imports fell 7.6% compared with an expected 11% decline and an 8.7% drop in November.

One expert, Kamel Mellahi, Professor of Strategic Management at Warwick Business School, says the pick-up in exports is due largely to the devaluation of the yuan.

"A weaker yuan can help China shore up economic growth by boosting exports but at the same time, as we have seen over the last couple of weeks, it creates volatility in financial markets,” he says.

"There has been a worry that China may turn to currency devaluation to boost exports but China has done the opposite over the past few days by intervening somewhat aggressively to shore up the currency."

Others say there is more to the trade figures than a currency drop. They note a 64.5% jump in imports from Hong Kong, the strongest pace in three years. This compared with a 6.2% decline for the January-November period.

”It really looks like capital flight,” says Oliver Barron, China research director at North Square Blue Oak. “This has artificially inflated the total import data.”

Crackdown on capital flight
China has struggled to adjust to massive capital outflows as investors seek better returns overseas, particularly in commercial and residential property.

Foreign exchange reserves fell 13.3% in 2015, or by $US500 billion, to $US3.3 trillion by the end of December, according to official data.

Chinese are only allowed to purchase $US50,000 worth of US dollars each calendar year. But manipulated foreign trade deals offer a way around tightening restrictions, analysts say.

A stricter supervisory scheme was introduced on January 1 to screen suspicious individual accounts and crack down on organised capital flight.

Copper prices rise
Meanwhile, the trade figures had an immediate impact on copper futures, which fell 25% in 2015 and were trading earlier this week at six-year lows.

The December trade data show near-record level of imports of some 530,000 tonnes – a rise of 26% year-on-year and the second-highest monthly figure on record.

The March delivery contract is now at $US1.9645 a pound in New York. China is the biggest global user of the base metal, consuming around 45% of world supply.

“China’s frequently cited demand weakness is not actually evident in the hard figures,” Commerzbank says in a client note.

But it adds the market is divided over whether the figures indicate rising demand or stockpiling at low prices.

ANZ Research says stockpile data suggest the signs are more bullish for demand.

Nevil Gibson
Thu, 14 Jan 2016
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China trade figures defy predictions of continuing decline
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