China Trade Growth Slows to 2-Year Lows in December

China's exports and imports grew at their slowest pace in more than two years in December as foreign and domestic demand ebbed, data released on Tuesday showed, bolstering the case for Beijing to further relax monetary policy to foster economic growth.

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Annual exports grew 13.4 percent in December, just below the 13.5 percent forecast in a Reuters poll of 23 economists and the slackest pace of expansion since November 2009 — excluding the volatile month of February last year when the Lunar New Year holiday disrupted activity.

Growth in imports slowed to a 26-month low of 11.8 percent, well below the 17 percent forecast.

"The main disappointment is with imports, which show a much weaker number compared to November and are way below consensus," said Kevin Lai, an economist at Daiwa Capital Markets, in Hong Kong. "That means the boost in November was temporary, the domestic economy is slowing sharply. China will have to continue to relax policy to protect domestic demand."

The December trade data was a key link in a series of activity indicators to be published by China over the next two weeks, including fourth-quarter gross domestic product that is likely to show the world's second-largest economy suffering its worst quarter in 2-1/2 years.

Financial markets showed little immediate reaction, with the Shanghai stock market

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Despite easing growth rates, the value of China's imports and exports — which hit record peaks in November — is expected to finish 2011 at or near all-time highs.

Still, slackening trade is disconcerting for Beijing as exporters are mainstay employers in China, even though their output accounted for only around 7 percent of China's 2010 GDP.

Policy Easing Ahead?

To counter patchy demand in the United States and Europe, China's top two export markets, Beijing cut banks' reserve requirements by 50 basis points in November, the first such cut in three years to boost corporate credit lines.

"Half of China's export markets are slowing in the first half of the year so that's why expectations for growth remain downbeat," said Li Wei, an economist at Standard Chartered, in Shanghai.

"It's not the end of the slowing down part of the story. That will probably last another quarter or four or five months before momentum recovers along with other emerging markets."

Most analysts foresee more policy easing ahead.

M2 money supply data published on Sunday showed money growth hitting a four-month high in December, suggesting Beijing is adding cash to the financial system to ease credit strains and stimulate the economy.

Analysts see slowing trade and tight domestic credit conditions dragging China into its worst quarter in 2-1/2 years between October and December, with GDP growth easing to 8.7 percent, down a full percentage point from the first quarter.

A Reuters poll in December showed analysts thought China could lower banks' reserve requirements by another 200 basis points in 2012, but that a cut in interest rates was only likely if economic growth slips below 8 percent.

Many economists believe China needs to grow its economy by about 8 percent, at least, if it wishes to create enough jobs to sustain current employment rates.

China does not release any reliable jobs data, and its only measure of unemployment is an urban jobless rate that has hovered between 4.1 and 4.3 percent since June 2009.