China Exports Fall Hard, But Investment Surges

Chinese exports fell more steeply than expected in April, overshadowing strength in capital spending and casting fresh doubt on how solid the prospects for recovery are in the world's third-largest economy.

Reed Saxon / AP

Exports were down 22.6 percent last month from a year earlier, the government said on Tuesday. That was steeper than March's 17.1 percent decline and greater than the 18 percent drop that economists had expected.

After adjusting for the numbers of working days, the customs office said China exported 6.9 percent more in April than in March. But most economists said the figures were disappointing.

"The future of the world economy remains uncertain, and it's really hard to be optimistic about China's trade prospects," said Qi Jingmei, an economist with the State Information Centre, a government think-tank in Beijing.

Qi also pointed to a 23 percent year-on-year drop in imports in April as evidence that private companies remained reluctant to invest. Economists had expected a 22 percent fall in imports after a 25.1 percent drop in March.

China had a trade surplus of $13.14 billion in April, calculated from export and import totals issued by the customs bureau. That was less than March's reading of $18.56 billion and the median forecast of $17.4 billion in a Reuters poll of economists.

"Exports are likely to drop further in the near term as economic indicators in the United States and Europe, such as industrial output and retail sales, are not looking up," said Wang Xiaohui, an analyst at Sinolink Securities in Shanghai.

Investment Boost

Recent figures from some of China's trading partners have indicated that the worst of a brutal contraction in export and import flows triggered by the global financial crisis may be over.

Jean-Claude Trichet, president of the European Central Bank, further fueled optimism on Monday by suggesting some economies have already turned the corner.  "The global economy is around the inflection point with some being beyond the inflection point," Trichet told a news conference in Basel, Switzerland, after chairing regular talks on the global economy among leading central bankers.

Saul Eslake, chief economist at ANZ Bank in Melbourne, said he would not interpret April's trade data as suggesting that hopes for a revival in China have suffered a material setback.

"The recovery is being driven primarily by domestic demand and policy measures that have driven domestic demand. It would be hard for China to recover by exports alone, in advance of a significant turn-up in the markets of its major trading partners," Eslake said.

Reinforcing the case that domestic demand is now the main engine of growth, the annual pace of fixed-asset investment growth in urban areas surged to 30.5 percent in the first four months in response to the government's 4 trillion yuan ($585 billion) stimulus plan.

Fixed-asset investment covers spending on everything from ports to factories. Economists had expected a reading of 29.1 percent following a 28.6 percent increase in the first quarter.

The government publishes only year-to-date investment data, but Goldman Sachs calculated the rise in April alone at 33.9 percent, up from an estimated 30.3 percent in March.

A leap in capital spending in transport, primary industries and projects backed by the central government all suggested that Beijing is succeeding in cushioning the blow of contracting exports.

"The accumulated growth momentum in fixed asset investment is really astonishing," said Dong Xian'an, chief economist at Southwest Securities in Beijing.

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Qi at the State Information Centre agreed that the figures were strong thanks to the government's pump-priming and an associated burst in bank lending.

"However, it should be noted that most of the projects were in the infrastructure sector, and it remains unclear whether these projects can generate sustainable output or give economic growth a continuous boost," he said.

One glimmer of hope on that front was that investment growth in real estate, a bellwether of China's private sector economy, increased modestly in the first four months of the year as confidence rose that a two-year downturn in the property market is ending.

Figures released by the government showed that property prices in 70 cities across China rose 0.4 percent in April -- twice March's gain -- to stand 1.1 percent lower than a year earlier. In March they had been down 1.3 percent on the year.

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