Sharp drop in imports concern investors on the Chinese economic health

The unexpected collapse in imports highlights the difficulties facing the Chinese economy, which in November recorded a record trade surplus despite the slowdown in exports, according to official data released Monday.

Imports fell in November by 6.7% yoy to 157,190 million-far from the 3.9% increase expected by analysts, and 4.6% in October, according to the customs administration. Meanwhile, the trade surplus in the second world economy, leader of trade in manufactured products rose in November to 54,470 million.

Analysts see these data motifs growing concern about the health of the Chinese economy, whose domestic consumption is earthbound, with real estate market, one of the pillars of activity-it contracts and deflationary tensions intensify.

Falling oil prices

The PMI of manufacturing activity (released last week) index “reflected a flagging demand, but the sharp contraction in imports is far from what was expected,” commented the ANZ bank experts Mondays.

A contraction in domestic demand falling commodity prices adds recalls Lu Ting, an economist at Bank of America Merrill Lynch. For Lu, the sharp decline in imports and the strong increase in the trade surplus “is explained by the collapse of oil prices,” which have lost nearly 40% since June, and the “Iron ore prices”. In this context, “he expect China to maintain strong trade surplus for several months due to falling prices of a barrel of black gold,” he estimated.

Furthermore, customs data reflect a continued contraction in external demand for China, whose economic growth rests largely on exports.

Thus, the country’s exports last month grew only 4.7% to 211,660 million, well below the average analyst forecasts (+ 8%). This represents a sharp slowdown in growth compared to the previous month (+ 15.3% in September, up 11.6% in October).

Are new monetary measures?

The salvo of disappointing data in recent months threatens to continue: the market expects a further slowdown in industrial production and sales. The data for November will be released on Friday. China’s economic growth was 7.3% in the third quarter, its lowest level in five years. Beijing’s goal was to grow around 7.5% of GDP in 2014, but analysts expect will be lower.

The economic situation has led the Chinese central bank (PBOC) to abandon their traditional prudent monetary policy in the hope of stimulating activity. The institution, which has held strong injections of liquidity into the financial system since September, in November reduced interest rates -the last time you used this measure dates back to 2012- to encourage credit.

The authorities could strengthen before the year ends monetary and fiscal measures, with new reduced levels of reserve requirements of banks. This hope of further monetary measures taken explains, dealers said, rising 2.8% recorded on Monday the Shanghai Stock Exchange after the publication of trade data.

The Chinese authorities might even revise downwards the GDP growth target for 2015 at a major meeting scheduled this week. Beijing is willing to moderate the growth of the country, speaking of a “new normal” as price to efforts to rebalance its economic model, cutting the monopolies of public groups, reducing overcapacity in the industry and non-productive investments, and putting an end to the outrageous debt.