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China imports collapse in September, exports remain weak

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China's trade slump extended into September, with imports collapsing and exports remaining feeble, underscoring the fragile state of the world's number two economy.

Dollar-denominated imports plunged by a worse-than-expected 20.4 percent in September from a year earlier, while exports slipped 3.7 percent, producing a trade surplus of $60.34 billion, official data showed on Tuesday.

Economists polled by Reuters had forecast imports to fall 15 percent, following a 13.8 percent slide in the previous month, and exports to decline 6.3 percent, after a 5.5 percent decline in August.

"Given the slight recovery in commodity prices, the decline in imports suggests sluggish domestic demand – in particular, investment demand," said Yang Zhao, China economist at Nomura. The 20.4 percent drop in imports is the biggest monthly decline since February.

The moderation in the contraction of exports is likely due to mild improvement in external demand, Zhao said. "Moreover, the better export data could be partially explained by a rather large appreciation of EUR against CNY in September from August, compared to a sharp depreciation of EUR against CNY in August-September 2014," he noted.

Alongside the release of the data, a spokesman for the country's customs department warned that the mainland economy faced relatively large downward pressure, Reuters reported. However, he noted that China's trade picture should improve in the fourth quarter as a weaker yuan helps export competitiveness.

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Julian Evans-Pritchard, China economist at Capital Economics agrees that a trade recovery is on the cards.

"We expect stronger growth in China's main trading partners to shore up exports over the coming quarters while a pick-up in investment spending should boost imports," he said.

"But even if we are wrong and these tailwinds do not materialize, headline trade growth still ought to recover over the coming months as a weaker base for comparison from the sharp fall in commodity prices late last year eases the deflationary drag on trade values," he added.

Nevertheless, poor trade performance in the final month of the third quarter reinforces a slowdown in the July-September period, say economists.

China will publish its third quarter gross domestic product (GDP) data on October 19. Growth is widely expected to slip below 7 percent, down from 7 percent expansion in both the first and second quarter.

Tuesday's trade data are the first in a slew of key economic indicators scheduled for release this week. Consumer and producer price indexes are due on Wednesday, while money supply figures are also slated for publication sometime this week.

China's economic downturn has been rippling across Asia in recent months. Taiwan and South Korea, who count China as their top customer, saw shipments tumble 14.6 percent and 8.3 percent on year, respectively, in September.

Over the weekend, South Korean Finance Minister Choi Kyung Hwan told CNBC that Asia's fourth largest economy was more vulnerable to a slowdown in China than rising U.S. interest rates.

"If China does slow down, because one fourth of Korean exports are destined for the Chinese market, it will be inevitable that our economy will be impacted," he said.

Last month, Federal Reserve chair Janet Yellen cited China's slowdown as a consideration in the decision to delay raising interest rates.