China exports shrink most in 2 years in December, raising risks for global economy

China got off to a strong start in 2018, but pressure on the economy started to build later in the year as the United States and China began imposing tariffs on each other's goods and global demand started to cool.




The dismal December trade readings suggest China's economy may have cooled faster than expected late in the year, despite a slew of growth-boosting measures in recent months ranging from higher infrastructure spending to tax cuts.

Some analysts had already speculated that Beijing may have to speed up and intensify its policy easing andstimulus measures this year after factory activity shrank in December.

China's December exports unexpectedly fell 4.4 per cent from a year earlier, with demand in most of its major markets weakening. Imports also saw a shock drop, falling 7.6 per cent in their biggest decline since July 2016.

Analysts had expected export growth to slow to 3 per cent with imports up 5 per cent.

"Today's data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China's exports," Nomura economists wrote in a note, referring to a surge in shipments to the US over much of last year as companies rushed to beat further tariffs.

"The export growth print also suggests that the recent strength of the yuan might be short-lived; Beijing will perhaps be more eager to strike a trade deal with the US; and that policymakers will need to take more aggressive measures to stabilise GDP growth."

Net exports had already been a drag on China's economic growth in the first three quarters of last year, after giving it a boost in 2017.



China's politically-sensitive surplus with the US widened by 17.2 per cent to US$323.32 billion last year, the highest on record going back to 2006, according to Reuters calculations based on customs data.




As many market watchers predicted, that boost has faded in the last few months. China exports to the US declined 3.5 per cent in December while its imports from the US were down 35.8 per cent for the month.

China's total global exports rose 9.9 per cent in 2018, its strongest performance in seven years, while imports increased 15.8 per cent.


"A trade recession is likely, in our view," Raymond Yeung, chief economist at ANZ, said in a note, predicting a period of export contraction similar to 2015-16.

"The global electronics cycle remains the key driver of Chinese exports. A potential downturn in the sector poses the real risk to China's external outlook even if China and the US reach a resolution on their trade dispute."



The higher tariffs China levied on US supplies also hit overall import growth. For all of 2018, soybeans, the second largest imports from the US, fell for the first time since 2011.

Even if Washington and Beijing reach a trade deal in their current round of talks, it would be no panacea for China's slowing economy, analysts say.

"The import slowdown is consistent with other signs that growth in China's domestic economy continued to weaken," said Louis Kuijs, head of Asia economics at Oxford Economics.



Early this month, the central bank said it would slash banks' reserve requirements -- the fifth such cut in a year -- as it tries to encourage more lending and reduce the risk of a sharp slowdown.

"If pressure on the economy is still relatively large in the first half, a cut every quarter should be highly likely," said Xu Gao, chief economist at Everbright Securities.



Sources told Reuters last week that Beijing is planning to lower its economic growth target to 6-6.5 per cent this year after an expected 6.6 per cent in 2018, the slowest pace in 28 years.