China December trade growth seen rebounding, but analysts remain cautious

BEIJING (Reuters) - China is expected to post stronger export and import growth in December, helped by a rebound from a low base, a Reuters poll showed, signalling a modest recovery in demand as Beijing and Washington step closer to ending their trade war.

FILE PHOTO: Containers are seen at Yantian port in Shenzhen, Guangdong province, China July 4, 2019. REUTERS/Stringer/File Photo

Exports by the world’s second-largest economy likely rose 3.2% in December from a year earlier, according to a median estimate from the survey of 31 economists, improving from a 1.3% drop in November and marking the first pickup since a 3.3% rise in July.

Imports are forecast to have jumped 9.6% from a year earlier in December, the strongest pace since October 2018, the poll showed.

Goldman Sachs analysts said the turnaround was due mainly to low base and a more visible effect of front-loading of exports last month.

Higher commodity price inflation also helped boost the value of imports, analysts said.

The stronger imports also denoted a pick-up in domestic demand, as suggested by China’s latest official factory activity survey, they said.

Overall sentiment improved last month after China and the United States reached a Phase 1 deal, which is expected to cut tariffs and boost Chinese purchases of U.S. farm, energy and manufactured goods while addressing some disputes over intellectual property.

China’s Vice Premier Liu He will visit Washington on Jan. 13-15 to sign the interim agreement.

However, analysts say the risks of further complications and a re-escalation of trade tensions remains, despite the preliminary deal.

“Against a background of rising tension and mistrust between the two countries in several dimensions, the risk of relations deteriorating again and tariffs ‘snapping back’ is substantial,” said Louis Kuijs, head of Asia economics at Oxford Economics.

Economists with Nomura forecast China’s export growth could continue to face strong headwinds amid still-high U.S. tariffs and sluggish external demand.

Despite growing strains on the economy, Beijing remains reluctant to implement major stimulus for fear of heightening financial risks due to high levels of debt.

China plans to set a lower economic growth target of around 6% in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said. Growth has cooled from 6.8% in 2017 to 6% in the third quarter of 2019, the slowest since the early 1990s.

On New Year’s Day, the People’s Bank of China announced it was cutting the amount of cash that all banks must hold as reserves. It was the eighth time since early 2018, the PBOC has reduced banks’ reserve requirement ratio (RRRs) free up more funds to shore up the slowing economy.

“Depending on growth in coming months, RRRs may be lowered somewhat more, and interest rates too. But we don’t expect significant further monetary easing,” said Oxford Economics Louis.

Reporting by Lusha Zhang and Ryan Woo; Editing by Simon Cameron-Moore