For the second time in as many days we have had more evidence that the Chinese economy is not in a position to rebound, and won’t for sometime.
Tuesday it was news of a sharp 1.6% fall in the annual rate of consumer inflation in February, and a worrying 4.5% fall in producer prices.
Yesterday it was a sharp fall in exports, and a surprise contraction in China’s trade surplus for the same month to just $US4.8 billion.
Exports fell 25.7% to $US64.9 billion and imports by 24.1% to $US60.1 billion.
The resulting trade surplus of $US4.84 billion, compared with $US39.1 billion in January and November’s record of $US40.1 billion.
China’s export slump puts in the same group as Japan, South Korea, Taiwan, Singapore and Malaysia and the Philippines which have seen their overseas shipments plunge by more than 20% in the past three months.
The market had expected just a 5% fall in exports and a 25% drop in imports. A Chinese newspaper reported last Friday that exports and imports in February had dropped by more than 20% and it was right.
But for the Lunar New Year falling in January, the fall would have been far steeper and probably a trade deficit.
Exports fell 17.5% in January and imports dropped a record 43.1% because of the Lunar New Year.
It means China’s trade surplus has fallen from that record $US40 billion last November, to just one tenth of that figure last month.
Once again it’s the fall in imports (helped by the drop in the value of oil imports and other raw materials) that tells the story of the broader economy: it’s slowing and the economic stimulus package from last November has yet to kick in.
The slump in the external account calls into question the claims by analysts and commentators that the stimulus package was starting to work.
Bank lending has been growing, property prices are still falling though and the strength of the country’s stockmarkets has been out of kilter with the reality of what’s been happening in the economy.
China has reduced export taxes on products from toys to textiles. The government plans to gradually cut all export taxes to zero to support overseas shipments, the country’s Commerce Minister said this week.
But other commentators say there was a quickening in China’s capital spending in the first two months of the year as the government’s stimulus package kicked in.
They said it provided further tentative evidence of recovery in the economy.
Investment in urban areas in fixed assets such as roads, power plants and apartment buildings rose 26.5% in January and February from the same months in 2008.
The figures were combined for both months to remove the destabilising effect of the Lunar new Year falling in January this year and February last year.
In all of 2008, urban fixed-asset investment was up 26.1%; in the first two months of 2008, it rose 24.3%.
Manufacturing is improving after a sharp decline, according to surveys; bank lending is surging; cement and steel output rose 17% and 2.4%, respectively, in the first two months, while the decline in power demand slowed; and car sales rose 25% to top 800,000 in February for the first time in eight months.
But the rise in steel output has proved fleeting as stocks of iron ore and coal rise at ports on the East Coast.
But from Japan more grim news on inflation as Japan’s wholesale prices fell at faster rate in February.
The Bank of Japan said the country’s producer prices dropped 1.1% in February from February last year. That was much faster than the 0.3% fall in January.
Like China earlier, prices in the manufacturing and wholesaling sectors are now falling faster than consumer inflation.
Producer prices fell 0.4% in February from January, when they dropped a revised 1.1%.
And this morning New Zealand’s Reserve Bank cut interest rates as expected to a new low of 3%, 0.25% under Australia’s cash rate. It’s the 6th rate cut since last July.
