China's Trade Slows, as Exports and Imports Sink in September

China’s export growth slowed notably in September while imports also dropped unexpectedly, customs data showed on Monday.

Outbound shipments grew 2.4% year-on-year last month – the slowest rise since April, and well under the 8.7% increase enjoyed in August and a big margin off forecasts.

Export momentum had been a bright spot for the Chinese economy, which has struggled due to weak domestic consumption and a property market debt crisis. Analysts said the figure suggests manufacturers are slashing prices to move inventory ahead of tariffs from several trade partners.

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Meanwhile, imports edged up 0.3%, which was also softer than the 0.5% growth in August. The weak data does not bode well for exports in coming months as just under a third of China’s purchases are parts for re-export, particularly in the electronics sector.

Increasing trade restrictions

“Export growth slowed last month but remained resilient, with volumes still rising at a double-digit pace,” Zichun Huang, China economist at Capital Economics said. “Further ahead, though, growing trade barriers are likely to become an increasing constraint.”

“The pivot toward monetary easing should also help support demand among China’s trade partners. But China’s export success is prompting increasing trade restrictions from other countries, which threatens to dampen longer-term export growth,” she added.

The European Commission on October 4 saw its motion to impose additional duties on electric vehicles built in China of up to 45% pass in a divided vote of EU member states, joining the US and Canada in tightening trade measures against China.

China’s overall trade surplus narrowed to $81.71 billion in September from $91.02 billion in August.

Manufacturing contracting

Manufacturing activity shrank sharply in September, according to a recent factory owners’ confidence survey, with new export orders falling to their worst in seven months.

Analysts have attributed previous months’ strong export performance to factory owners slashing prices to find buyers.

“Export growth in the fourth quarter is still likely to remain positive, but in the context of slowing external demand, the downside risk of exports is large,” said Wang Qing, chief macro analyst at Oriental Jincheng, adding that manufacturing activity was way below the average for the last 10 years.

Last week, the head of China’s state planner said he was “fully confident” of achieving the government’s full-year growth target of around 5%.

And on Saturday, Chinese officials announced plans to ramp up debt issuance to aid local governments in managing their debt problems and provide increased support to low-income earners.

But the omission of a dollar figure for the package prolongs investors’ nervous wait for a clearer policy roadmap to overcome deflationary pressures and lift consumer confidence.

Data released after markets closed

Officials waited until after China’s markets had closed to release the trade data. The US-listed shares of red parka maker Canada Goose dropped 4.4% before the bell after Wells Fargo downgraded its stock on weak China demand.

Analysts anticipate it will take a long time to restore consumer and business confidence and get the $19 trillion economy on a more solid footing. A housing market recovery, in particular, could be a long way off.

That said, China’s iron ore imports rose 2.9% last month year-on-year, partly on hopes for improved demand over September and October, the peak construction season, while the country’s copper imports climbed from a month prior too.

New bank lending in China missed forecasts in September, separate data released by the People’s Bank of China showed, although household loans, including mortgages, rose to 500 billion yuan in September from 190 billion yuan in August, according to Reuters’ calculations.

“The change of fiscal policy stance as indicated by the press conference over the weekend is critical as a pillar for growth next year,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said.

“Looking ahead it would be difficult to sustain strong export growth into next year, as trade tension heightens.”