China's October exports, imports to contract at sharper pace: Reuters poll

BEIJING (Reuters) - China’s exports and imports probably fell at a slightly faster rate in October, pointing to a worsening outlook for the country’s manufacturers as Beijing remains embroiled in a trade standoff with Washington, a Reuters poll showed.

FILE PHOTO: A worker sorts imported goods on a truck next to containers at a port in Qingdao, Shandong province, China October 14, 2019. REUTERS/Stringer

The forecasts come despite optimism that a first-phase trade deal could be signed this month between China and the United States to resolve a 16-month long trade war that has raised the risk of a global recession and roiled financial markets.

The “phase one” deal is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cell phones, laptop computers and toys.

China’s October exports are expected to have contracted for a third month, falling 3.9% from a year earlier, according to the median estimate of 26 economists in the poll, worsening from a 3.2% drop in September.

The existing tariffs, including the latest additional levies by the United States on Chinese imports from Sept. 1, have hit the county’s outbound shipments, along with stubbornly weak global demand.

That is also evidenced by worsening export orders in an official factory survey.

Though the possibility of a thaw in tense trade relations between the world’s top two economies is rising, economists warn the path towards a full deal is still highly uncertain and expect that a partial trade deal may only relieve some of the pressure on the world’s second-largest economy.

So far, U.S. President Donald Trump has only canceled a scheduled Oct. 15 tariff increase on $250 billion goods. And U.S. officials said they are still considering the fate of the Dec. 15 tariffs on Chinese-made goods.

“The September and scheduled December tariff hikes will likely weigh on exports and growth in the coming two quarters. Higher tariffs and trade war uncertainties may continue to hurt corporate earnings and manufacturing sector investment,” analysts with UBS wrote in a note.

Imports, meanwhile, are also likely to remain in contraction, shrinking 8.9% from a year earlier, the sharpest drop since July 2016, versus an 8.5% decline in September, the poll showed.

The forecasts point to a rocky outlook ahead for the trade-reliant economy in the last quarter of the year, despite more than a year of growth boosting measures.

China’s third-quarter economic growth slowed more than expected to its weakest pace in almost three decades, with gross domestic product rising just 6.0% on year, weighed down by cooling domestic demand, sluggish investment and weak exports.

China on Tuesday kicked off a giant import fair in Shanghai, trying to showcase its free trade credentials, temper criticism of its policies and deepen its global economic influence.

But critics say the week-long Chinese buying spree once a year does little to address structural concerns, including weak intellectual property protection, entry barriers and the lack of a level playing field for foreign businesses in China.

In a reassurance to investors worries that higher inflation could prevent the central government from delivering fresh stimulus measures, China’s central bank cut the interest rate on its one-year medium-term lending facility (MLF) loans on Tuesday for the first time since early 2016.

Analysts said the cut, while modest, may be a sign the central bank is turning more proactive, following a slew of downbeat economic data suggest more stimulus is needed soon.

“With economic activity likely to come under further pressure in the months ahead, we think more easing will be needed to prevent growth from slowing too sharply. We expect another 70 (basis points) of reductions in the MLF rate by the middle of next year,” analysts at Capital Economics said.

Reporting by Lusha Zhang and Ryan Woo; Editing by Jacqueline Wong