Weak China trade shows little alternative to adding stimulus

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(Bloomberg) -- A contraction in China’s trade flows shows little alternative for the nation’s leaders than injecting support for domestic demand as they struggle to achieve their growth target.

Overseas shipments dropped 6.9 percent in October in dollar terms, the customs administration said Sunday, a bigger decline than estimated by all 31 economists in a Bloomberg survey. Weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8 percent, leaving a record trade surplus of $61.6 billion.

The report set a soft tone for a data-heavy week featuring key October releases. Industrial production and fixed-asset investment are forecast to show little pickup, even after six central bank interest-rate cuts and moves to spur local government spending. The silver lining: retail sales gains are seen underscoring the rising role of consumers.

While an expanding middle class propels revenue and earnings at companies like Internet giant Alibaba Group Holding Ltd.-- which on Wednesday hosts Singles Day, the year’s biggest shopping event -- it hasn’t been enough to offset declining heavy industries. Exports helped stoke China’s rapid-growth phase, a period that now seems over as the global economy decelerates.

“The October trade data keep pressure on for more domestic easing,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “Measures are likely to continue to focus on shoring up domestic demand rather than weakening the currency. And over time the role of fiscal policy expansion should rise.”

Other figures this week are projected to show continued deflation in the industrial sector, and consumer-price inflation softening in October to a 1.5 percent annual pace. That weakness would underscore the scope for additional easing by the People’s Bank of China.

Sunday’s trade report showed exports to Japan slumped 9 percent in the first 10 months from a year earlier, while those to the European Union declined 3.7 percent. Shipments to Hong Kong dropped 11.7 percent during the period.

“Exports continue to face structural headwinds,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. “With recent economic data continuing to indicate some moderation in Chinese economic growth during the second half of 2015, the Chinese government may utilize additional monetary and fiscal stimulus measures to boost gross domestic product growth in 2016.”

U.S., India
Exports to the U.S., China’s largest trading partner, jumped 5.8 percent in the first 10 months from a year earlier, while those to the Association of Southeast Asian Nations increased 4.2 percent. Shipments to India rose 8.9 percent.

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