China imports slump, raising demand concerns

BEIJING: China trade in January decrease the most since the depths of the financial crisis, raising concerns Lunar New Year factory shutdowns do not fully explain a slump in imports and may instead be evidence of a further faltering in demand.

Imports sank 15.3 percent in January versus January 2011 the lowest since August 2009 while exports fell 0.5 percent over the same period, the worst showing since November 2009, customs data showed on Friday.

"A fall of over 15 percent in January cannot be entirely explained by the Lunar calendar, and adds weight to the view that economic output is slower than headline indicators might suggest," said Ren Xianfeng, an economist at IHS Global in Beijing.

The figures may sound an alarm-bell on the resilience of domestic demand that has shielded the world's second-largest economy from slackening exports.

But Lunar New Year distortions will make policymakers wary of any hasty reaction, so analysts expect them to assess January and February data combined before deciding whether the current policy of gentle easing needs to be intensified.

The drop in exports and imports left China with a trade surplus of $27.3 billion in January, its biggest in six months and confounding expectations of a further narrowing

Exports to the European Union, China's top export market, fell 3.2 percent in January from a year earlier after rising 7.2 percent in December, the data shows.

Exports to the United States grew 5.5 percent in January from a year earlier, slowing from December's 11.9 percent rise.

Analysts cautioned against reading too much into a single month of data skewed heavily by the seasonal distortion of the week-long Lunar New Year holiday, which fell in January this year and in February last year. Factories typically shut or run at half speed during this period.

That left economists reading between the lines with the wide range of their forecasts a clear sign of uncertainty.

"The drop in both January exports and imports is not drastic enough to trigger any aggressive move in monetary policy," Sun Junwei, economist at HSBC Global Research in Beijing, said.

"The decision makers may probably look at more indicators for February and other data such as foreign exchange purchase positions to gauge the policy stance."

Analysts at Bank of America/Merrill Lynch said in a client note that making swift adjustments for actual days worked showed the data in a different light.

Under such an adjustment, exports may have grown 28.7 percent from a year earlier and imports may have risen 10 percent given that there were just 17 working days in January compared to 22 working days a year ago.