China Reserves, Exports Show Stabilization as Growth Slows

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China's Economy: Are There Signs of Stability
  • Currency hoard rose $7.089 billion to $3.22 trillion in April
  • Shipments up 4.1% in yuan terms, down 1.8% in dollar terms

China reported a modest stabilization in exports this weekend as the value of the currency decreased, as well as the first back-to-back gain in foreign reserves in almost two years, suggesting the economy is steadying amid slowing growth.

The world’s largest currency hoard rose $7.089 billion to $3.22 trillion in April, the People’s Bank of China said Saturday. Overseas shipments rose 4.1 percent in yuan terms from a year earlier yet fell 1.8 percent in dollar terms, the customs administration said Sunday. Imports slumped 10.9 percent in dollars to leave a trade surplus of $45.6 billion.

"China’s exports stayed positive in April, but with gains flattered by yuan depreciation," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. "Policy makers will likely remain in wait-and-see mode before deciding on further stimulus."

Even after the PBOC cut the main interest rate to a record low last year, the tepid trade data are the latest sign that a sustained pickup in growth remains elusive. Economists project the pace will slow this year to a quarter-century low of 6.5 percent, according to a Bloomberg survey, the minimum level pledged by China’s leaders.

While export and import values fell in dollars, volumes rose from a year earlier. In the first four months of this year, import volumes for copper rose 30.8 percent from a year before, while crude oil increased 11.8 percent and iron ore was up 6.1 percent.

The reports show trade "normalized and stabilized," Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a note. "Imports continued to suffer from a negative valuation effect," he said, citing data for the first four months of the year showing imports of commodities rising in volume but not value.

Stocks fell Monday with the Shanghai Composite Index down 2.5 percent as of 2:01 p.m. local time. That extended the gauge’s loss this year to 20 percent.

The two consecutive gains in reserves were the first since June 2014, when China’s holdings peaked at a record $4 trillion. Since then the stockpile has decreased 19 percent after policy makers defended the currency amid capital outflows.

Fed Signal

The market’s confidence in the yuan has strengthened as the Federal Reserve signaled it will hold off on interest-rate increases. A smaller-than-expected U.S. payroll gain Friday of 160,000 gives the central bank more reason to hold off on a rate hike next month.

The Chinese central bank reiterated on Friday it wants to keep the yuan stable, according to its first-quarter monetary policy implementation report.

China’s currency has been moving in virtual lockstep with the weakening dollar versus major peers this year, providing policy makers with a veneer of stability and exporters with a boost to earnings. The yuan is little changed against the greenback in 2016 while an index that measures its performance against the exchange rates of 13 trading partners has dropped 4.3 percent to the lowest since 2014.

Under Pressure

Also on Friday, Premier Li Keqiang said China must prevent large-scale unemployment and shift toward growth driven by skilled workers and innovation. “The economy still faces great downward pressure and our pro-growth measures should target increasing employment and incomes,” Li said, the official Xinhua News Agency reported.

For Li and other policy makers pushing toward economic growth led more by consumers and services, there was welcome news last week in the quarterly results from Alibaba Group Holding Ltd., which posted a 39 percent surge in sales. Asia’s largest Internet company is often regarded as a proxy for Chinese consumer spending.

The mixed export data for April follow a March surge in both currencies, which may have been exaggerated by seasonal effects after the Lunar New Year holiday. The jump was due to recovering global demand and a low comparison base versus last year, Sheng Laiyun, a spokesman for National Bureau of Statistics, said last month.

Downside Risk

"China’s data improvement in March is short-lived," said Zhou Hao, an economist at Commerzbank AG in Singapore. "The market has to prepare a little bit for the downside risk in other Chinese data and some sort of market correction might be inevitable," he said, adding that monetary policy is likely to remain accommodating.

Cumulative export data for the year showed more weakening. Shipments declined 2.1 percent in yuan terms in January to April versus the same period a year earlier, while slumping 7.6 percent in dollar terms, the China customs administration reported Sunday.

Fading prospects for a pickup in global growth may continue to weigh on Chinese exports. The International Monetary Fund in April cut its world expansion forecast to 3.2 percent this year, down from a projected 3.4 percent in January, and said the prolonged period of slow growth has left the global economy more exposed to negative shocks.

Other trade data released by the customs administration Sunday showed April oil imports by the world’s biggest consumer after the U.S. rebounded amid strong buying by independent refiners that have helped push the country’s crude demand to a record.

Steel exports decreased last month as local prices and demand surged, curbing the incentive for mills in the top producer to seek overseas sales. Still, the April figure took exports over the first four months to 7.6 percent more than a year earlier.

Other reports due this week may show continued firming in inflation, with the consumer price index projected to post a second-straight 2.3 percent gain on Tuesday, according to economists surveyed by Bloomberg. Producer price index declines probably narrowed for a fourth straight month, to 3.7 percent, after four years of deflation in the measure.

Watch next: Are There Encouraging Signs in China's Economy?

— With assistance by Jeff Kearns

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