China's Exports Disappoint, but Won't Derail Recovery
Assistant Producer, CNBC Asia
China's trade numbers for November came in far below expectations, taking some shine off the encouraging data released over the weekend, however, economists are confident the slump in export growth will not derail the recovery in the world's second largest economy.
The rise in exports, which make up 25 percent of the country's gross domestic product (GDP), slowed to 2.9 percent year-on-year last month, against expectations for a 9 percent uptick, driven by weaker demand out of the U.S., Europe and Japan. Import growth, meanwhile, was flat, below forecasts for a rise of 2 percent.
"The trade numbers are disappointing coming off two months of strong data, but they don't change the picture of accelerating GDP growth in China," Darius Kowalczyk, senior economist at Credit Agricole-CIB, told CNBC.
"China is not as export dependent as it used to be, what matters now for growth is domestic demand," he added.
Investment and consumption now play a much larger role in the country's growth, compared to trade. Gross fixed capital formation – a measure of investment in the economy – and consumption by households make up around 46 percent and 35 percent of GDP, respectively, according to Credit Agricole.
Beijing has rolled out a slew of measures to boost economic activity this year, including two cuts to the benchmark interest rate and the approval of infrastructure projects worth more than $150 billion.
Donna Kwok, Greater China economist at HSBC, agreed, adding that although China's external outlook remains challenging, she expects the recent revival to be sustained by the continued firming up of domestic demand and the end of the de-stocking cycle.
"The relatively smaller downside surprise of today's (Monday's) imports release hints at the continued pace of recovery in China's domestic demand - something that was underscored by November's healthy industrial production and retail sales results just released this weekend," Kwok added.
Last month, industrial production grew by a more-than-expected 10.1 percent year-on-year from 9.6 percent in October, while retail sales growth also rose by a more-than-expected 14.9 percent year-on-year from 14.5 percent. China's vehicle sales also rose a robust 8.2 percent in November from a year earlier.
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The recent data are in line with China's goal to shift away from a reliance on exports in favor for more consumption-led growth, said economists.
"When we look at domestic activity data, they point to a decoupling between the domestic economy and the rest of the world in Europe and Japan," said Raymond Yeung, senior economist, Greater China at ANZ.
Some China watchers, including Ren Xianfang, senior China economist at IHS, however, are more wary about the outlook for the mainland economy.
"The extremely weak exports data have thrown in one more piece of evidence about the fragility of the recovery," Ren said.
She added that the rebound over the past two months has been somewhat "politically charged," as the Chinese government tries to present a picture of economic stabilization amid a once-in-a-decade leadership transition.
"A rebound of the economy is just a matter of time, given that the de-stocking cycle which started in the final quarter of 2011 is nearing an end. But political factors have apparently contributed to a much earlier rebound," she added.
Import Data Key
For more clarity on the strength of the recovery Kowalczyk said he would be closely monitoring the country's import data, which showed no growth in November.
Looking at a basket of 8 key resources including copper, aluminum and soybeans, commodity imports fell by 1.8 percent in volume terms last month, from a year earlier, according to data from Credit Agricole. This compares to a rise of 9 percent in October and 4.6 percent in September.
"There is weakness in China's demand for key commodities related to infrastructure spending, but the data is quite volatile, and I wouldn't change my outlook based on one month of data," he said.