China Export Drop Limits Recovery; Food Stokes Inflation

China’s exports unexpectedly fell in September and inflation jumped on food prices, signaling constraints on the nation’s recovery as Premier Li Keqiang seeks to sustain growth without adding monetary stimulus.

Overseas shipments dropped 0.3 percent from a year earlier, customs data showed on Oct. 12. Consumer prices rose 3.1 percent as food costs advanced the most since May 2012, statistics bureau figures showed today in Beijing. New yuan loans topped estimates today in central bank data while the broadest measure of credit fell from August, as authorities try to support expansion without boosting shadow finance.

The trade and inflation reports add to Li’s challenges in defending the government’s 7.5 percent expansion goal for this year after he introduced steps including faster railway spending and tax cuts following a two-quarter slowdown. The International Monetary Fund cut its global growth outlook last week as capital outflows further weaken emerging markets.

“A big risk for China now is that the government has to scale back its domestic pro-growth policies while external demand fails to grow to make up the gap,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing, who previously worked at the World Bank. “If that happens, it will result in very weak growth starting next year.”

Yuan Gains

The yuan strengthened 0.2 percent against the dollar after the central bank raised the currency’s reference rate to a record, while China’s benchmark money-market rate declined for a third day. The Shanghai Composite Index of stocks rose 0.4 percent.

The increase in China’s consumer-price index compares with the 2.8 percent median estimate of 44 economists in a Bloomberg survey, after a 2.6 percent gain in August. The decline in the producer-price index narrowed to 1.3 percent from 1.6 percent the previous month. The government is targeting 3.5 percent consumer inflation for the year.

“As the inflationary pressure has picked up, the central bank is unlikely to change the tightening bias” in monetary policy for the rest of the year, Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note today.

New yuan loans in September were 787 billion yuan ($129 billion), the People’s Bank of China said, compared with the 675 billion yuan median analyst estimate. Money-supply growth slowed to 14.2 percent while the broadest measure of credit, aggregate financing, fell from a year earlier to 1.4 trillion yuan.

Forex Reserves

China’s foreign-exchange reserves, the world’s largest, rose to $3.66 trillion in September from June’s $3.5 trillion, the biggest quarterly gain in more than two years, central bank data showed.

The pickup in September’s CPI was driven by eggs, vegetables, fruits and pork, as well as non-food items including fuel and tourism, according to a statistics bureau statement citing statistician Yu Qiumei. Non-food prices rose 1.6 percent in September, below a 2 percent pace for a 20th month.

The 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.

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

‘True Story’

“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.

“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.”

Distortions that began late last year from fake export invoices used to disguise capital inflows, 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,” Shen said. Regulators in May cracked down on over-invoicing of exports.

September imports rose 7.4 percent from a year earlier, topping 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.

(Updates with new yuan loans in second paragraph.)
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