China trade data paints dreary picture of economy

Brent Lewin | Bloomberg | Getty Images

China's annual import and export figures slowed sharply in November, data showed on Monday, reinforcing signs of fragility in the world's second-largest economy.

Exports rose 4.7 percent in November from a year earlier, much slower than an 11.6 percent rise in October and below expectations for an 8.2 percent increase in a Reuters poll.

Imports fell an annual 6.7 percent in November, well below October's 4.6 percent rise, and below expectations for a 3.9 percent increase. That left the country with a trade surplus of $54.5 billion for the month, above expectations of $43.5 billion.

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The Australian dollar weakened against the U.S. dollar after the data was released, recently trading at $0.8297.

"It's clear domestic demand is pretty weak, most of the decline seems to be commodity related – which partly reflects lower prices, but is also because of the slowdown in the housing sector and overcapacity in industrial sectors," Alaistair Chan, economist at Moody's Analytics told CNBC.

The slowdown in exports, meanwhile, was likely driven by a clamp down on over-invoicing seen earlier in the year and could suggest a cooling in global demand, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole.

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Over-invoicing is a technique by which companies inflate the value of exports, allowing them to evade capital controls and bring more funds into the country.

"It's clear policymakers will need to do more to stimulate the economy" Kowalczyk said, forecasting a cut to the reserve requirement ratio (RRR) in December and to interest rates in the first quarter of next year.

The remaining pieces

Investors will get a deeper insight into the health of the economy over the course of the week, with inflation, industrial output, retail sales and fixed asset investment data for November due in the coming days.

In addition, top policymakers are expected to convene in Beijing this week for the country's annual Central Economic Work Conference (CEWC) – a closed-door meeting that sets economic priorities for the coming year, including the gross domestic product (GDP) target.

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While the targets are typically made public in March during the National People's Congress, they are occasionally leaked to local media shortly after the meeting.

As growth appears set to fall towards the lower-end of this year's "about" 7.5 percent target, Beijing is widely expected to propose a target of 7.0 percent – the lowest in a decade.