China September imports blow past expectations as economy remains in high gear

Containers being unloaded from the Maersk's Triple-E giant container ship Maersk Majestic, one of the world's largest container ships, in Shanghai September 24, 2016. — Reuters pic
Containers being unloaded from the Maersk's Triple-E giant container ship Maersk Majestic, one of the world's largest container ships, in Shanghai September 24, 2016. — Reuters pic

BEIJING, Oct 13 — China's import and export growth accelerated in September, suggesting the world's second-biggest economy is still expanding at a healthy pace despite widespread forecasts of an eventual slowdown.

The data also suggested further improvement in the global economy, with business activity and demand having picked up markedly this year in Europe and the United States.

The upbeat readings will be welcome new for Beijing ahead of a twice-a-decade Communist Party Congress next week, at which President Xi Jinping is expected to tighten his grip on power and set out the government's top political and economic priorities for the next five years.

Imports grew 18.7 per cent in September from a year earlier, beating analysts' forecasts for a 13.5 per cent expansion and accelerating from 13.3 per cent in August, customs data showed on Friday. The gain was stronger than the most optimistic forecast in a Reuters analysts poll.

Exports rose 8.1 per cent, below forecasts of 8.8 per cent but the most in three months and handily beating August's 5.5 per cent.

“Growth momentum is still quite strong and better than our previous expectations,” ANZ senior China economist Betty Wang said.

Once again, China's imports were led by industrial resources as a year-long construction boom shows no signs of flagging and factories kept humming, boosting demand for materials from steel to copper.

Higher commodity prices greatly magnified the strength of the bounce, but volumes surged, too, pointing to still-solid underlying demand.

Iron ore imports rose to a record 103 million tonnes, from 88.7 million tonnes in August, according to Reuters calculations. Copper imports were the highest since March.

That left the country with a trade surplus of US$28.47 billion (RM120 billion), less than the near US$40 billion expected and down from around US$42 billion in August.

China's foreign trade will likely grow at a double-digit pace this year if current conditions continue, the General Administration of Customs said.

In addition to pointing to buoyant demand, some of the surge in September imports may have been due to companies “front loading” supplies ahead of a week-long national holiday in early October, analysts said.

Capital Economics' China economist Julian Evans-Pritchard said the timing of the mid-Autumn festival this year also meant there were more working days last month than in September 2016, suggesting October figures should show a partial reversal.

“Nonetheless, today’s figures suggest that not only has strong foreign demand continued to prop up manufacturing activity in China but domestic demand remains resilient, too,” Evans-Pritchard said.

Record trade surplus with US

China's politically sensitive trade surplus with the United States rose to a record for a single month, according to Reuters calculations using official data going back to 2008. The surplus grew to US$28.08 billion from US$26.23 billion in August.

Exports to the United States grew 13.8 per cent on-year from 8.4 per cent in August and hit a record US$40.9 billion. Import growth slowed to 15.5 per cent, from 18.1 per cent.

That could aggravate President Donald Trump's frequent complaints that the trade balance between the two nations hurts the US economy.

Trump in August authorised an inquiry into China's alleged theft of intellectual property in the first direct trade measure by his administration against Beijing, but the move is not expected to prompt any near-term change.

Commerce Secretary Wilbur Ross recently pressed China on the “need to rebalance bilateral trade and investment relations” and urged it to take "meaningful action" on trade issues.

China-US ties have also been strained by demands that Beijing do more to pressure North Korea over Pyongyang's nuclear and missile programmes.

China's imports from North Korea fell 37.9 per cent in September from a year earlier, marking the 7th consecutive month of decline, while exports dropped 6.7 per cent.

With the European Union, China's exports rose 10.4 per cent and imports 30.9 per cent.

Surprising resilience

China's economy has surprised analysts with its resilience so far in 2017, expanding by 6.9 per cent in the first half, though most market watchers have stuck to predictions that it would lose some momentum in coming months.

Authorities are in the midst of a campaign to reduce the risks from a rapid build-up in debt produced by years of credit-fuelled stimulus, and sustained trade growth could give policymakers confidence to step up the campaign next year once the leadership reshuffle is out of the way.

That could see a further rise in borrowing costs for companies and consumers.

Government measures to cool hot housing prices are also expected to start weighing on property investment and construction.

China is also in the midst of its toughest environmental crackdown ever, ordering many mills, chemical plants and coal companies in northern parts of the country to sharply reduce output or close in coming months to reduce its notoriously thick winter smog.

The cuts are expected to last through March and around 30-35 million tonnes of Chinese crude steel production could be taken offline, Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

That translates to 42-49 million tonnes of iron ore consumption, equivalent to about 3 per cent of the global seaborne iron ore market, he said.

Still, while the pollution crackdown may slow China's economy and its contribution to global trade, growth in other sectors may mitigate the impact. At this point, most analysts continue to see a gradual loss of momentum, not a hard landing.

"There are still some infrastructure investments ongoing and some stabilisation in property investment, so I would not worry too much about the impact of environmental efforts on the growth momentum," ANZ's Wang said. — Reuters

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