China’s Exports Decline for a Third Month in Drag on Growth

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China's Economy Needs More Stimulus, Mizuho's Shen Says

China’s exports fell for a third month in May, while imports slumped the most in three months, underscoring a sluggish domestic environment that may trigger more monetary policy support.

Overseas shipments fell 2.8 percent from a year earlier in yuan value, the customs administration said in Beijing on Monday. Imports slid 18.1 percent, leaving a trade surplus of 366.8 billion yuan ($59.1 billion). U.S. demand helped prevent a deeper decline in shipments abroad.

The trade slowdown coincides with a slump in investment growth that is putting Premier Li Keqiang’s 2015 growth target of about 7 percent at risk. In response, officials have eased monetary policy and engineered a debt swap for local governments so they can keep funding infrastructure projects.

“What concerns me is the weaker-than-expected import growth in May, suggesting the domestic demand recovery is uncertain,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. “Monetary policy will continue to ease to support domestic demand.”

The Shanghai Composite Index gained 2.2 percent at the close, the highest since January 2008 on expectations the government may roll out more stimulus. The Australian dollar, seen as a proxy for China’s economy due to Australia’s shipments of raw materials, gained 0.2 percent against the U.S. currency after having earlier slipped on the data.

Improving Slightly

China’s exports fell 2.5 percent last month from a year earlier in dollar terms, while imports plunged 17.6 percent, leaving a trade surplus of $59.49 billion, customs data showed. The U.S. contributed 18.8 percent to total exports, the most since August 2010, while the European Union made up 15.1 percent.

Iron ore imports by China contracted in May from April and the same month a year earlier. Adjusted for the number of days in the month, imports were at the slowest pace since November as a downturn in construction linked to a weak property sector hurt demand.

“The fall in imports show weak domestic demand, even after excluding the price factors” of commodities, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “We will see exports slightly improving, as the U.S. economy is recovering” and sentiment in Europe is good.

Early indicators for China’s economy in May had provided tentative hints at stabilization, with the official and the HSBC Markit purchasing managers’ indexes edging up, Bloomberg economists Fielding Chen and Tom Orlik wrote after the trade data. Yet total trade posted an 8 percent annual contraction in the first five months of the year, compared with the government’s target of 6 percent growth for 2015.

“Weakness in external and domestic demand requires a more aggressive policy response,” Chen and Orlik said. “Further policy easing is needed to support the economy and ensure it expands at a pace close to the government’s 7 percent target.”

— With assistance by Xiaoqing Pi

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