Weak exports boost looser policy hopes

Tim Wallace
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CHINESE trade grew at its slowest pace for two years last month, official figures revealed yesterday.

However, markets rose in the hope that such weak figures would prompt the authorities to cut interest rates in an effort to stimulate demand.

China’s exports expanded by 13.4 per cent in the year to December, the slowest growth since November 2009.

Once inflation is taken into account, exports declined by 1.6 per cent in the fourth quarter, compared with average growth of 3.5 per cent for the last eight quarters.

Import growth fell to a 16-month low of 11.8 per cent on the year, well below economists’ expectations.

In real terms, quarterly growth stood at 10.4 per cent.

“This is likely to be the result of re-stocking rather than an indication of strong domestic demand growth,” said Diana Choyleva from Lombard Street Research.

“With monetary conditions extremely tight in the second half of 2011, company profit margins and profits decimated by fast rising input costs and more generally the surge in wasteful investment after the global financial crisis, it will be a total surprise if real GDP growth is not well below trend.”

Although growth may be down, Shanghai’s main stock index finished the day up 1.65 per cent.

“The coming policy easing is most likely to be focused on administrative measures, including cuts in banks’ required reserve ratio,” continued Choyleva.

Despite the slowing growth, the total value of imports and exports combined stood at a record high of $3.6 trillion (£2.32 trillion) in 2010.

However, the overall trade surplus shrank to a three-year low of $155bn from 2010’s $183.1bn.