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China Surprises with Weak Exports, Signals Slow Recovery

10 Dec 2012

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(Reuters) - China's exports growth slowed sharply to a much lower than expected 2.9 percent in November, underscoring the global headwinds dragging on an economy showing otherwise solid signs of a pick up in domestic activity.
Recession in Europe and a lack of a robust recovery in the United States -- China's top two export markets -- suggest the revival of the world's second-biggest economy will be slow and gradual, analysts said.


A report on Monday showing Japan had slipped back into recession added to the gloomy trade backdrop, reports Reuters.
"The external sector remains fragile, although recent manufacturing activities have showed convincing signs of stabilisation and a gradual recovery," said Connie Tse, an economist at Forecast Pte in Singapore.


"I expect export growth to pick-up throughout 2013, but this is likely to be gradual and volatile in absence of a material improvement in the euro zone."


China's annual exports growth in November was well below expectations for a 9.0 percent increase and behind October's 11.6 percent pace, customs figures showed. The Christmas shipment season for smartphones from the world's biggest exporter of mobile phones came to an end in November, which analysts said may explain the softening.


Imports were unchanged on the year, off forecasts for a 2.0 percent rise. The relatively subdued reading masked a surge in imports of crude oil, iron ore and copper that analysts said underlined the view activity was picking up.


The trade data represented the weakest performance for exports and imports since August and a contrast to data on the domestic economy, which is raising expectations that seven straight quarters of sliding GDP growth will come to an end in the fourth quarter.


Government figures on Sunday showed that industrial output rose a higher-than-expected 10.1 percent in November from a year earlier, the fastest pace since March. Electricity output rose 7.9 percent, the strongest since December.
Annual growth in retail sales hit 14.9 percent, also an eight-month high, while the pace of fixed asset investment, or spending in such areas as bridges, factories and housing, was steady at 20.7 percent in the first 11 months.


"The export slowdown shows external demand faces uncertainty due to concerns over the 'fiscal cliff' in the U.S.," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.


"Nonetheless it does not change our view that growth is on track for a strong recovery in Q4, as (growth) is mostly domestically driven."


In the United States, scheduled tax increases and spending cuts due to kick in early in 2013 could suck $600 billion out of the economy, raising fears a recession could follow unless Congress acts.

SMARTPHONE IMPACT
Kevin Lai, an economist at Daiwa in Hong Kong, said smartphone shipments were probably to blame for the disappointing weakness in exports growth.
"The numbers in Taiwan, Korea, and now China have all been disappointing," he said. "But it's entirely due to the smartphone impact. That accounted for one-third to one-half of the increase in September and October."
Indeed, Nicole Peng, a smartphone analyst at research firm Canalys in Shanghai, said the Christmas shipping season for smartphones, such as Apple Inc's (AAPL.O) iPhone 5, ended in November.


That may partly explain the swing from October's 11.6 percent rise in exports over a year earlier to November's much weaker performance.


More importantly though, analysts say the divergence probably reflects the fact that the value of each phone is rising faster than the volume of shipments as factories retool to make high-end gadgets.
"The whole mobile phone ecosystem has been transformed," Peng said.


The value factor would have exacerbated the slow down in November as Christmas demand eased off.
The number of phones that China shipped in the first eight months rose 15.5 percent from a year earlier, but the value of those phones increased close to 28 percent, customs data shows.


China will ship 1 billion mobile phones this year, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products estimated.


OUTLOOK
In the first 11 months, China's exports and imports grew 5.8 percent from a year earlier, running well below a government 2012 target of 10 percent.

Tags: World, Business, Chinese market

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