Weak import demand suggests that the stimulus moves that Beijing has put in place this year—including fiscal spending on rail, social housing and energy programs and targeted monetary policy easing—lack staying power, which could prompt more stimulus measures to meet economic growth targets.
"The weak imports reinforce fears that the impact of any mini-stimulus or targeted measures didn't last very long," said ING economist Tim Condon.
The General Administration of Customs said Monday that exports grew 9.4% on year in August, down from a 14.5% rise in July, while imports declined by 2.4%, after a 1.6% drop in July. Exports were slightly higher than expected, while imports were significantly lower than forecast by a Wall Street Journal survey of 15 economists.
With exports rising to the U.S., Europe and Southeast Asia and imports falling, China's trade surplus with the rest of the world widened to a record of $49.8 billion in August, up from the $47.3 billion surplus posted in July, a development that could intensify calls from U.S. Congress for Beijing to allow the yuan currency to appreciate further after weakness this year.
The pattern of solid Chinese exports and weak imports in the past few months reverses a trend seen early in 2014 when imports held up while global demand remained weak on the back of inclement U.S. weather.
"Exports to the U.S. held up well in August," said Julian Evans-Pritchard, economist with Capital Economics. "But the most interesting part was imports. Demand for commodity imports was very weak given the weak property sector and weak investment in general."
Economists attributed this drop in part to weaker domestic demand for commodities. Iron ore imports in particular were soft, thanks to the stumbling housing market and a crackdown by authorities into companies that use metal imports as collateral for loans from banks.
But commodity prices also declined, which made the import decline look greater in dollar terms than it actually was in volume terms, economists added.
U.S. demand for China's exports will likely remain healthy in coming months helped by the launch of Apple's iPhone 6, economists said, while the outlook for shipments to Europe remains mixed given ongoing concern over the political crisis in Ukraine. "China's exports will likely remain elevated for the remainder of this year," said ANZ economist Liu Li-Gang in a research note.
While healthy, the rise in exports still falls far short of the average 27% a year growth logged between 2000 and 2007. Nor will China's rising exports obviate the need for potentially painful structural reforms, analysts said. "The idea that an export recovery is going to buoy growth enough to give space for reform obviously doesn't have any traction," said Conference Board economist Andrew Polk.
With robust exports and a slow recovery in imports expected in coming months, economists said they expect a string of strong monthly trade surpluses ahead. This could put upward pressure on the yuan, leaving the central bank under pressure to intervene in currency markets, they added.
"Massive trade inflows need to be offset somehow," said Mr. Evans-Pritchard. "If they opened up the capital account, this appreciation pressure could be somewhat offset by capital outflows. But that doesn't seem to be likely," given China's traditional focus on capital controls, he added.
Intervention in a midterm election year could lead to renewed charges from the U.S. that China is manipulating its currency to favor exporters, analysts said.
"At the corporate level in the U.S., there will always be complaints," said Mr. Condon. "It's like farmers, the weather is never good enough." At the government level, however, China's current account surplus is now down to around 2% of GDP which should blunt manipulation charges, Mr. Condon added, although "if this turns out to be the beginning of a massive Chinese current account surplus, that could all change."
China has set a 7.5% annual growth target. CIMB Securities economist Fan Zhang said to boost China's flagging economy, Beijing could in coming months speed up approvals for environmental protection, new energy, railways, infrastructure, shantytown refurbishment and agricultural projects.
Source: Wall Street Journal by Mark Magnier and Richard Silk
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