China September trade bounces, recovery traction eyed

BEIJING Sat Oct 13, 2012 12:52am EDT

BEIJING (Reuters) - China's exports grew at roughly twice the rate expected in September while imports returned to the path of expansion, suggesting government measures to underpin economic growth are working and additional policy action may not be needed for now.

Customs data showed exports in September grew 9.9 percent from a year earlier, roughly twice the 5.0 percent rate expected by investors and up sharply from the 2.7 percent annual rise recorded in August.

Imports rose 2.4 percent year-on-year in September, in line with findings in the benchmark Reuters poll that had forecast a recovery from August's surprise 2.6 percent annual decline.

The trade surplus was $27.7 billion in September, compared with a forecast of $20.7 billion and August's $26.7 billion.

"The export data is much stronger than expected, signalling that overseas markets have recovered," Xiao Bo, economist at Huarong Securities in Beijing told Reuters.

Xiao said a trade recovery implied a slide in China's economic growth is likely to have been arrested, boding well for a recovery to take hold in the fourth quarter to brighten the jobs outlook - a key factor for Beijing as a November leadership transition for the ruling Communist Party looms.

"With the recovery in the export growth, we think Beijing will not cut RRR or interest rates further in the coming months as policymakers tend to keep policy stable when China heads towards a once-a-decade leadership change," Xiao said.

China has cut required reserve ratios for commercial banks by 150 basis points since November last year, freeing an estimated 1.2 trillion yuan ($190 billion) for lending, and cut interest rates in June and July to help underpin growth.

OUTLOOK STILL TOUGH

The outlook for China's trade remains tough as the debt crisis festers in the European Union - the single biggest overseas market for Chinese goods - and a slower-than-expected recovery in the U.S. economy weigh on exports.

Exports to the EU fell 10.7 percent year-on-year in September, the fourth straight month of decline, the third double-digit drop in a row and the seventh month of contraction so far this year. Exports to the EU this time a year ago were up 9.8 percent.

Sales to the U.S. showed a mild improvement, up 5.5 percent year-on-year in September from August's 3.0 percent gain, though still less than half the 11.6 percent annual growth seen in September 2011.

A notable bright spot were exports to neighbouring emerging market economies in the Association of Southeast Asian Nations (ASEAN), which jumped 25.5 percent year-on-year in September versus August's 10.3 percent to $18.3 billion.

Imports from Taiwan surged 19.9 percent and from South Korea grew 9.0 percent on a year earlier - key indicators of potential improvement in forward order books for many Chinese exporters which need products from both markets to keep assembly lines humming along fulfilling orders for foreign buyers.

There was no clear evidence that a territorial dispute with Japan, that grew increasingly bitter in September, had yet hit overall trade between the two nations.

Imports from Japan were down 9.6 percent year-on-year in September, though August's rate of decline was heftier at 11.4 percent. Exports meanwhile rose at an annual rate of 2.2 percent against August's 6.7 percent decline.

The clearest sign of the uneven improvement in the trade picture came from China's key raw materials suppliers, Australia and Brazil, where imports fell 22.6 percent and 14.2 percent, respectively, year-on-year in September, with overall commodity demand remaining weak despite the import bounce.

TRADE GROWTH BELOW TARGET

China's total trade growth in the first nine months of the year meanwhile was just 6.2 percent - way behind the official 10 percent target for the year. Officials say external demand may even weaken in the months ahead.

China's exports generated 31 percent of gross domestic product in 2011, according to World Bank data, and supported an estimated 200 million jobs. Analysts polled by Reuters expect the economy to have its weakest year of expansion since 1999.

China is due to publish economic data for the third quarter on October 18 and analysts expect it to confirm GDP growth slowed for a seventh successive quarter, slipping to 7.4 percent year on year - the lowest level since Q1 2009 as the global financial crisis raged and world trade ground to a halt.

To cushion headwinds from external risks, Beijing has rolled out an array of measures to help relieve the burden on exporters, such as quickening tax rebate payments, cutting red tape and loosening access to bank loans.

The Finance Ministry said last month it would suspend inspection and quarantine fees for all goods coming in and out of China for the rest of this year to shield exporters and importers from the global economic downturn.

On the domestic front, the government in September gave the go-ahead to infrastructure projects worth around $157 billion.

"Beijing's recent measures to support trade growth, such as a faster pace of tax rebate payments and easier access to bank loans, are starting to bite," Xue Hexiang, analyst at Guotai Junan Securities in Shanghai, said.

"I think that the trade performance may continue to improve in the coming months, as business confidence recovers. We expect that full year export growth may reach 8 percent, while imports grow about 6-7 percent," Xue said.

(Reporting By Xiaoyi Shao and Sui-Lee Wee; Writing by Nick Edwards; Editing by Michael Perry)

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