China’s monthly trade figures provided some rare positive news out of the country today as both exports and imports declined by a slower pace in December. Exports fell by 1.4% year-on-year last month, beating expectations of an 8% drop and compares with a fall of 6.8% in November. Imports also continued to decline but the rate eased to -7.6% in December from -8.7% the prior month. The figure was sharply below estimates of an 11.5% drop.
Exports have been fallen for 10 out of the 12 months in 2015, posting a yearly drop for the first time since 2009. Sluggish overseas demand and factory overcapacity are the main problems facing Chinese exporters. This has subsequently led to a slowdown in economic growth to around 7%.
The downturn has dampened domestic demand for resources, which has been the main factor driving down global commodity prices. Imports in China have fallen year-on-year for the past 14 months. But there are signs that demand is stabilizing as imports of commodities jumped in December on suspected stockpiling and with prices currently at multi-year lows.
Some analysts expressed doubt whether today’s numbers are an indication of an improving picture for China’s economy given that Chinese exports tend to perform strongly in the month of December. However, it should be noted that in yuan-denominated terms, exports actually rose by an annual rate of 2.3% in December. (The trade numbers are announced in US dollars). Next week’s GDP numbers should provide a better idea of how the economy performed in the fourth quarter.
An improved outlook would help ease the pressure on the People’s Bank of China (PBOC), which has been intervening in the markets to prop-up the yuan as capital flight intensifies. On Wednesday, the PBOC set the yuan’s midpoint at 6.5630 yuan per dollar, keeping it more or less steady for a fourth day. The offshore yuan also stabilized after the central bank intervened aggressively on Monday to minimize the spread between the yuan’s onshore rate, pushing up overnight borrowing costs in Hong Kong to as high as 96%. The offshore yuan is currently trading slightly below the onshore rate at 6.5735 versus 6.5745 in mainland China.
Global markets reacted positively to the data with European equity markets opening higher, and safe-haven currencies such as the euro and the yen declining against the dollar. The Australian dollar, which often serves as a liquid proxy for developments in China, regained the 0.70 level against the greenback and was up at 0.7022 in mid-European session. However, share prices in China were unable to maintain the momentum and fell sharply by the close, with the CSI 300 index ending the day down by 1.9%.
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