Hopes of a quick recovery in China’s trade performance were dashed after figures published today showed both exports and imports fell by a bigger-than-expected amount in January. January exports slumped by 11.2% year-on-year, widely missing forecasts of a more modest 1.9% drop. Imports also continued to decline and were down 18.8% from a year ago in January, falling short of estimates of a 0.8% fall.
However, with imports falling at a faster pace than exports, China’s monthly trade surplus soared to a record high of US$63.3 billion. This provided some support to the Chinese yuan, which has been under pressure since the currency’s abrupt devaluation last August. Speaking over the weekend, the Governor of the People’s Bank of China, Zhou Xiaochuan blamed speculators for driving down the yuan. He warned that China won’t give in to speculative forces and said there’s no basis for the yuan to depreciate further.
The yuan has weakened by about 6% against the dollar since last August but this has yet to provide any boost to the country’s exports. Shipments to the US, China’s largest trading partner, were down 9.9% in January, while exports to the European Union, it’s second biggest market, declined by 12% year-on-year.
January’s figures also mark a reversal of the slower pace of decline seen in recent months towards the end of last year, suggesting that China’s slowdown has some way to go before demand starts to recover. The data was not as dismal though when looking at it in local currency terms. Exports were down by 6.6% in yuan-denominated terms. There was also some positive news for retailers, with data out over the weekend showing that sales were up 11.2% over the year during the one-week Lunar New Year holiday period.
China’s stock market shrugged off the worse-than-expected numbers as the firmer yuan and the broader risk on sentiment helped shares rebound from losses of almost 3% at one point. The Shanghai SE Composite and the CSI 300 index both ended the day just 0.6% lower on Monday, following a week-long closure for the Chinese New Year.
The yuan strengthened to its highest level against the dollar since the end of December after the PBOC reiterated its commitment to maintaining a stable currency. At the same time, the PBOC said it will continue to use a basket of currencies in determining the daily midpoint. The onshore yuan, which is allowed to trade around a 2% band from the midpoint, rose to 6.4917 per dollar after the PBOC set Monday’s fix at 6.5118. Offshore yuan was trading only marginally weaker at 6.4940 per dollar.
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