Trade

China exports fall 11.2% in January, imports down 18.8%

Iron ore and steel prices may not take off even with a massive infrastructure investment in China.
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China's exports fell 11.2 percent on-year in January, while imports declined 18.8 percent, clocking far bigger slides than expected by analysts.

Analysts polled by Reuters had expected a 1.9 percent drop in January exports, and a 0.8 percent drop in imports, after China's exports fell 1.4 percent in December from a year earlier and imports slid 7.6 percent .

China's trade surplus came in at $63.3 billion in January, against analysts' expectations of a $58.85 billion surplus.

Separately, yuan-denominated data showed exports fell 6.6 percent in January and imports dropped 14.4 percent from a year ago. That left the country with a trade surplus of 406.2 billion yuan for the month.

China's economic growth rate slowed to a 25-year low of 6.9 percent in 2015, as the world's second-largest economy continues to shift away from its manufacturing roots.

The economy grew 6.8 percent in the fourth quarter of 2015 from the same period last year, official data showed in January.

To counter slowing growth, China's policy makers have taken a slew of easing measures, including interest rate and reserve requirement ratio cuts from the central bank.

Nomura analysts said in a note that the below-forecast decline in export growth suggested a deterioration in external demand, although growth in retail sales over week-long Lunar New Year holidays still pointed to stable growth in consumption.

China's retail sales grew 11.2 percent during the week-long Lunar New Year vacation, compared with the same holiday period last year, Ministry of Commerce data showed on Saturday.

"Therefore, we believe the slump in trade growth mainly reflects weakening investment demand, possibly from weaker property investment and measures to reduce overcapacity," Nomura said.

Capital Economics' China economist Julian Evans-Pritchard said there may also be distortions due to Lunar New Year and capital flows.

"For a start, Chinese trade growth is notoriously volatile during the first quarter due to the shifting timing of Lunar New Year, which makes the monthly data less comparable with the previous year," he wrote.

Attempts to arbitrage the gap between the offshore and onshore Chinese yuan exchange rate may have also inflated export growth in December, Evans-Pritchard added.

"As such, the slowdown in export growth in January may partly reflect the easing of this (artificial) boost to shipments – the gap between the onshore and offshore rates narrowed last month," he said.

"In a similar vein, capital outflows disguised as trade flows are likely to have inflated imports at the end of last year. With policymakers having recently begun cracking down on such illicit flows, headline import growth may have been hit as a result."

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More broadly, Aaron Boesky, chief executive of Marco Polo Pure Asset Management, told CNBC that although uncertainty and volatility was likely to reign in China over the short-term, the country was on track for a soft landing

"The economy has been seeing a major shift in last few years from manufacturing and infrastructure investment economy to a service and consumption-driven economy...The economy is in full economic transition swing. It's going on in from of our face to a modern, developed economy," said Boesky.

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