China exports drop, inflation eases in blow to confidence

HONG KONG: China’s exports fell the most since the global financial crisis, dealing another blow to confidence as Communist Party leaders meeting in Beijing assess the risk from the nation’s first onshore bond default.

Shipments abroad dropped 18.1 per cent from a year earlier, the customs administration said in Beijing on Saturday, trailing the median estimate for a 7.5 per cent increase in a survey of 45 economists. Reports yesterday showed inflation eased to a 13-month low in February and producer prices fell for a 24th month.

Data distortions

Distortions in the data from the Lunar New Year holiday and fake invoicing that inflated numbers last year make it harder to assess the true picture. As the nation chases a 7.5 per cent annual growth target, set at last week’s meeting of the National People’s Congress, officials need to contain stresses in the financial system from the credit boom that began with stimulus measures in 2008.

“People see a lot of negative news coming out of China: growth momentum is slowing and when there is a default of one company they tend to think it’s going to be a systemic problem and spill over into the rest of the economy,” said Ding Shuang, senior China economist at Citigroup in Hong Kong.

Inflated base

Even so, the drop in exports isn’t as bad as it appears when taking into account the holiday, the inflated base of last year’s numbers, and a weather-related ‘soft patch’ in the United States economy, said Ding, whose forecast of an 8.5 per cent decline in sales was closest to the customs figure.

Imports rose 10.1 per cent, more than projected, leaving a trade deficit of $23 billion, the biggest in two years.

Shanghai Chaori Solar Energy Science & Technology, a maker of solar cells, on March 7 became the first company to default in China’s onshore bond market after failing to pay full interest.