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China’s Unexpected Export Drop Underscores Global Demand Threat

Photographer: Nelson Ching/Bloomberg

Trucks are parked next to shipping containers at the Yangshan Deep Water Port in Shanghai. Close

Trucks are parked next to shipping containers at the Yangshan Deep Water Port in Shanghai.

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Photographer: Nelson Ching/Bloomberg

Trucks are parked next to shipping containers at the Yangshan Deep Water Port in Shanghai.

China’s exports unexpectedly fell in September, signaling the constraints of global demand on the nation’s recovery and highlighting distortions caused by fake invoices that have yet to be eliminated from trade data.

Overseas shipments dropped 0.3 percent from a year earlier, the General Administration of Customs said in Beijing on Oct. 12, trailing all 46 estimates in a Bloomberg News survey, while imports rose a more-than-forecast 7.4 percent. The release of September inflation data today will provide further indication of the strength of domestic demand.

The trade report may add to Premier Li Keqiang’s challenges in defending the government’s 7.5 percent expansion goal for this year. The International Monetary Fund cut its global growth outlook last week as capital outflows further weaken emerging markets and warned that a U.S. government default could “seriously damage” the world economy.

“There has been an export recovery since July to the U.S. and Europe but it’s been pretty weak,” said Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. “The driving force for China’s recovery at this stage is still housing and infrastructure investment.”

The impact of inflated export data that started late last year, fewer working days due to the timing of the Mid-Autumn Festival holiday, and currency volatility in Southeast Asia have left the trade figures “quite murky,” he said.

Accelerating Inflation

China’s consumer price index (SHCOMP) probably rose 2.8 percent from a year earlier according to the median estimate of 44 economists in a Bloomberg survey, after a 2.6 percent gain in August. Analysts forecast the decline in the producer-price index narrowed to 1.4 percent from 1.6 percent the previous month.

The statistics bureau will publish third-quarter gross domestic product on Oct. 18. The economy probably expanded 7.8 percent from a year earlier, according to a Bloomberg survey, up from the second quarter’s 7.5 percent pace.

Premier Li said last week in Brunei that GDP grew more than 7.5 percent in the first nine months of 2013, putting the government on track to achieve its full-year target of the same pace. He also told U.S. Secretary of State John Kerry of China’s “concern about Washington’s debt-ceiling problem,” the official Xinhua News Agency said.

In an English-language commentary on the fiscal impasse yesterday, Xinhua writer Liu Chang called for a “de-Americanized world” and a new international reserve currency to shield the international community from the “spillover of the intensifying domestic political turmoil” in the U.S.

`True Story’

China’s benchmark Shanghai Composite Index of stocks advanced 2.5 percent last week, the biggest weekly gain in a month, and the yuan rose 0.02 percent against the U.S. dollar in Shanghai.

September’s trade slowdown resulted from a high basis of comparison with last year, the customs administration said in a statement.

“Sometimes a single month’s data can’t tell the true story, and there are other factors as well,” Zheng Yuesheng, a customs spokesman, said at an Oct. 12 briefing when asked about the export drop. “I see this as a seasonal thing.”

The median estimate in a Bloomberg survey was for a 5.5 percent gain in September exports from a year earlier after a 7.2 percent pace in August.

Sales to South Korea, Taiwan and the European Union declined from a year earlier and growth in shipments to the Association of Southeast Asian Nations slid to 9.8 percent from August’s 30.8 percent pace. Exports to the U.S. rose 4.2 percent, slowing from 6.1 percent in August.

Capital Inflows

Comparing September’s exports with a year earlier may understate the true picture because of distortions from inflated data in 2012, analysts at Credit Agricole CIB and Citigroup Inc. said before the report. Regulators in May cracked down on over-invoicing of exports used to disguise capital inflows.

The gain in September imports topped the median 7 percent forecast in a Bloomberg survey. The $15.2 billion trade surplus compared with a median projection of $26.25 billion and $28.5 billion in August.

While imports used for processing and re-export “are still not doing very well, those that feed into China’s own economy continue to grow quite robustly, reflecting a still pretty healthy picture in terms of demand,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong.

China’s daily oil imports climbed to a record last month. Purchases have risen “as a result of expansion in the economy and its growing demand for resources,” Zheng said.

Downside Risks

The strong yuan has also “eroded China’s export competitiveness,” Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note after the data.

The yuan rose about 2.7 percent against the U.S. dollar in the 12 months through September, while Asian currencies including the yen, Singapore and Taiwan dollars and Indonesia’s rupiah fell.

There are still “downside risks to China’s economy,” Liu and economist Hao Zhou wrote. While there was speculation September’s trade slowdown resulted from last year’s over-invoicing, “our preliminary comparison showed that the port throughput indeed slowed in major wharfs last month,” they said.

The IMF said Oct. 8 that growth worldwide will be 2.9 percent this year and 3.6 percent next year, compared with July projections of 3.1 percent for 2013 and 3.8 percent for 2014.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net; Nerys Avery in Beijing at navery2@bloomberg.net.

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

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