China’s foreign trade growth slowed sharply in May amid forecasts that the GDP of the second largest economy is poised to decline to around 7.5 per cent this year.
Total foreign trade volume grew 0.4 per cent year on year last month to $345.1 billion, a significant pullback from the 15.7-per cent gain seen in April, the General Administration of Customs said today.
Exports inched up merely one per cent year-on-year to $182.77 billion, while imports declined 0.3 per cent to $162.34 billion leaving China with a surplus of $20.43 billion for the month.
From a month earlier, exports went down 2.3 per cent and imports shed 3.0 per cent, state-run Xinhua news agency reported.
China’s GDP growth slowed to 7.7 per cent in the first quarter of 2013 from the 7.9-per cent expansion logged in the fourth quarter of last year.
IMF projected China’s GDP to grow around 7.5 per cent this year from last year 7.8 per cent.
“The weaker-than-expected May data reflects China’s recent crackdown on hot money inflows,” said Chang Jian, China economist with Barclays Capital.
Rising momentum in China’s foreign trade in recent months, against the background of poor strength elsewhere, has raised suspicions that companies may have misreported exports to obtain tax rebates or to bypass the country’s capital controls to move money into the mainland, prompting authorities to create new rules to check trade flows.
Earlier last month, the State Administration of Foreign Exchange said it would increase scrutiny of exporters and hand down warnings to those found to be sneaking funds to China through trade.
Wendy Chen, a Shanghai-based economist at Nomura Securities, said the rapid appreciation of the yuan amid quantitative easing in other countries was another factor swamping demand for Chinese exports.
The central parity rate of the yuan strengthened by 117 basis points to reach a new high of $6.1620 against the US dollar yesterday.
Since the beginning of April, the yuan has hit a historic high of 19 times, a trend that analysts largely believe is not sustainable.
Nomura expects China’s foreign trade to maintain soft growth in the following months.
But Liu Ligang, chief greater China economist at ANZ Banking Group, said severe challenges lie ahead, as trade frictions are on the rise.
This week, the European Union decided to impose duties on imports of Chinese solar panels. China subsequently opened an anti-dumping and anti-subsidy investigation into wine imported from the EU.
The rising trade frictions, though involving a relatively small portion of trade, will further complicate the already murky trade outlook, Liu said.
Today’s data followed a string of other surveys that pointed to subdued strength in the economy, the Xinhua report said.
The Purchasing Managers’ Index for the manufacturing sector rose to 50.8 per cent in May from 50.6 per cent in April, while activity in the non-manufacturing sector slackened.
Chang said that whether the weak data will lead to loosened policies needs to be reviewed with other key industrial data, including retail sales and investment, which are due on Sunday.
But policymakers have so far refrained from introducing drastic measures to stimulate the economy for fear of inflating housing bubbles and disrupting financial stability.
Instead, the government has pinned its hopes on proceeding with structural reforms, including widening market access and reducing government intervention, to lift growth.
“The government should be very concerned. But I think the new leaders have a lower bottom line for GDP growth of around 7 per cent, compared with the 7.5-per cent rate that we previously expected,” Chang said.