September export contraction prompts calls for CNY realignment
Trade figures disappointing but do not signal a significant downturn in the economy
The latest disappointing import-export figures and weakness in yuan trading has renewed negative sentiments surrounding the Chinese economy, but neither signal a significant downturn.
Although, of course, it doesn’t help if exports contribute less to growth, but at the same time the State Council needs to put in restrictive measures to tame the runaway property sector.
The pressure is rising for a lower yuan against its trading partners to restore Chinese export competitiveness.
China’s exports are down 10%, with imports 1.9% lower compared to September last year in US dollar terms. Both figures were worse than expected, with exports expected to fall 3.3% and imports predicted to rise 0.6%, in US dollar terms.
In Renminbi terms, exports are down 5.6% and imports up 2.2% from September last year and again, both figures are off the estimates which had exports increasing 2.5% and imports up 5.5%.
The disappointing figures have been attributed to lower demand both domestically and overseas, according to reports in the English media such as Reuters and CNBC which cited economists.
The trade report dealt a further blow to the Chinese yuan. The official onshore exchange rate against the US dollar closed on Thursday just a tad stronger than 6.73 at 6.7299, compared to the previous close of 6.7180.
There are increasing number of analysts calling for further weakness in the currency to substantiate the flagging export outlook.
However, in a press briefing, Huang Songping, China’s customs spokesperson, argued that Renminbi depreciation has a limited impact on exports, according to a report in Caixin.
Although the weakened Renminbi might be helpful for export-oriented enterprises, the cost of importing raw materials will rise accordingly, he said.
Considering that the processing trade still accounts for a large proportion of imports and exports, this will further ease the impact of currency fluctuation.
Nevertheless, it can be argued that even with the a lower Renminbi, the currency is still much too strong for the Chinese economy.
In real exchange effective rate (REER) terms, the CNY is still approximately 14% above what it was in the middle of 2014, even though it has dropped roughly 3% year to date, according to calculations by Barclays. In comparison to the Japanese Yen (JPY), which in REER terms is 21% below the level at the end of 2012, the CNY REER is 27% above the value from the same period.
Huang remains hopeful that export pressure will ease in the fourth quarter this year, according to a report in Sina Finance.
Huang said in the report that the China Export Managerial Confidence Index for the last three quarters showed a rise from 36.9 in July to 38.7 in August and then 39.9 in September this year.
China’s exports to countries involved in the One Belt One Road initiative also saw moderate growth. Exports to Pakistan and Russia increased 14.9% and 14% respectively for the first three quarters this year, while exports to Poland and Bangladesh, increased 11.7% and 9.6% respectively.
Mechanical and electrical products and conventional labor-intensive products remain to be the driving force behind exports. Medical equipment and instruments lead the growth with 6.3%, while textiles, toys and plastic products had comparable increases.
Domestic demand for commodities also remains strong, he added, with demand for steel, crude oil, copper and other commodities still growing.