China economic recovery intact, but weak exports to drag
By Aileen Wang and Kevin Yao | December 10, 2012 9:42 PM EST
China's exports growth slowed sharply to a much lower than expected 2.9 percent in November, a customs report said on Monday, underscoring the global headwinds dragging on an economy showing otherwise solid signs of a pick up in domestic activity.
Data at the weekend showed both industrial output and retail sales rose in November at their fastest annual pace in eight months, reinforcing the view that growth in the world's second-biggest economy is finally picking up after a long slide.
However, weak exports will drag on the revival in the Chinese economy as its major buyers struggle; Europe and Japan with recession and the United States with a sluggish recovery.
"The external sector remains fragile, although recent manufacturing activities have showed convincing signs of stabilization and a gradual recovery," said Connie Tse, an economist at Forecast Pte in Singapore.
"I expect export growth to pick-up throughout 2013, but this is likely to be gradual and volatile in absence of a material improvement in the euro zone."
China's annual exports growth in November was well below expectations for a 9.0 percent increase and behind October's 11.6 percent pace, customs figures showed. The Christmas shipment season for smartphones from the world's biggest exporter of mobile phones came to an end in November, which analysts said may explain the softening.
Imports were unchanged on the year, off forecasts for a 2.0 percent rise. The relatively subdued reading masked a surge in imports of crude oil, iron ore and copper that analysts said backed the view domestic activity was picking up.
The trade data represented the weakest performance for exports and imports since August and a contrast to data on the domestic economy, which is raising expectations that seven straight quarters of sliding GDP growth will come to an end in the fourth quarter.
Government figures on Sunday showed that industrial output rose a higher-than-expected 10.1 percent in November from a year earlier, the fastest pace since March and above forecasts for an increase of 9.8 percent. Electricity output rose 7.9 percent, the strongest since December.
Annual growth in retail sales hit 14.9 percent, the strongest since March, while the pace of fixed asset investment, or spending in such areas as bridges, factories and housing, was steady at 20.7 percent in the first 11 months.
"The export slowdown shows external demand faces uncertainty due to concerns over the 'fiscal cliff' in the U.S.," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.
"Nonetheless it does not change our view that growth is on track for a strong recovery in Q4, as (growth) is mostly domestically driven."
In the United States, scheduled tax increases and public spending cuts due to kick in early in 2013 could suck $600 billion out of the economy, raising fears a recession could follow unless Congress acts.
Kevin Lai, an economist at Daiwa in Hong Kong, said smartphone shipments were probably to blame for the disappointing weakness in exports growth.
"The numbers in Taiwan, Korea, and now China have all been disappointing," he said. "But it's entirely due to the smartphone impact. That accounted for one-third to one-half of the increase in September and October."
That may partly explain the swing from October's 11.6 percent rise in exports over a year earlier to November's much weaker performance.
More importantly though, analysts say the divergence probably reflects the fact that the value of each phone is rising faster than the volume of shipments as factories retool to make high-end gadgets.
"The whole mobile phone ecosystem has been transformed," Peng said.
The value factor would have exacerbated the slow down in November as Christmas demand eased off.
The number of phones that China shipped in the first eight months rose 15.5 percent from a year earlier, but the value of those phones increased close to 28 percent, customs data shows.
China will ship 1 billion mobile phones this year, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products estimated.
In the first 11 months, China's exports and imports grew 5.8 percent from a year earlier, running well below a government 2012 target of 10 percent.
China's exports to the European Union fell 18 percent in November from a year earlier, the sixth straight decline. The Organisation for Economic Co-operation and Development cited the euro area crisis in a report last month warning that exports will remain a weak spot for China's economic outlook.
The OECD forecast China's economy would grow by 7.5 percent in 2012 - in line with a government target - before picking up to expand 8.5 percent in 2013.
Despite efforts to rebalance the economy towards domestic consumption, exports generated 31 percent of gross domestic product in 2011, World Bank data shows, and supported an estimated 200 million jobs.
The People's Bank of China, the central bank, cut interest rates in both June and July and has lowered banks' reserve requirement ratio (RRR) by 150 basis points since late 2011, freeing an estimated 1.2 trillion yuan ($193 billion) for lending.
Most analysts believe room for further policy easing is limited as inflation and property prices start to pick up.
Sunday's inflation report showed China's consumer price index rose 2 percent in November from a year ago, slightly less than forecasts for a 2.1 percent gain and up from 1.7 percent in October. Vegetable prices soared 11.3 percent.
Although that leaves consumer inflation well below Beijing's 4 percent target for 2012, the central bank has said rising prices represent the biggest risk long term as China makes a transition from a planned to a market-based economy.
(Additional reporting by Lucy Hornby and Koh Gui Qing; Editing by Neil Fullick)
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