Chinese imports had a rocky end to 2011, posting their lowest level of growth in more than two years amid warnings from the country's policy makers of a weaker year ahead in trade.
Both export and import growth fell in December year on year, in what economists said was the dual impact of falling commodity prices and slowing demand from abroad. Chinese exports grew 13.4 per cent, down slightly from November, while import growth sat at 11.8 per cent year-on-year, a dramatic fall from November's 22.1 per cent.
More significantly, China's overall trade surplus for 2011 has narrowed to a three-year low, now sitting at $155.14-billion (U.S.), down 14.5 per cent from 2010. On the positive side, this indicates China's economy is beginning to depend less on its exports and more on at-home demand for its manufactured goods.
But it may also encourage further government spending this year to ward off too much of a slowdown – a policy that ensured Chinese growth in the wider 2008 economic crisis, but later contributed to inflation and a debt crisis in its immature private sector.
The numbers also add strength to Chinese arguments against a faster-floating currency, as long demanded by the United States, which accuses the country of keeping the yuan artificially low to promote cheap exports. U.S. Treasury Secretary Timothy Geithner arrived in Beijing Tuesday for two days of talks.
China's vice-minister of commerce, Zhong Shan, said this week that the country's foreign trade will face a "more complex" and "grim" situation this year because of a lack of external demand and more intense competition, according to state news agency Xinhua.
At stake for China is achieving a so-called soft landing, seen as keeping gross domestic product growth at or just above 8 per cent, while slowing runaway property markets and reining in free-spending banks and local governments to gain control of inflation.
"I suspect in the next year's growth rate, the most important part will be investment from government expenditure," said Yu Miaojie, an economics professor specializing in international trade at Beijing University. "In the long run, we should boost domestic consumption. But in the short run, if you are talking about the coming year, they will boost expenditure."
Restrictions on property ownership in many cities have continued, but late in 2011 policy makers began relaxing their approach, again dropping banks' reserve ratio requirements to make lending easier, and introducing some help on loans and taxes for struggling small- and medium-sized enterprises.
"Although December's exports growth held up better than expected, headwinds from weakening external demand will persist in the coming months to drag exports growth to a single-digit pace. Simultaneously, the sharp deceleration of imports growth suggests still-weak domestic demand," wrote Qu Hongbin, co-head of Asian economics research at HSBC, who predicted another 150 basis-point cuts in banks' reserve ratio requirements, along with tax cuts and fiscal spending.
Although export growth was slightly stronger than expected, trade is expected to feel the impact of a threatened recession in Europe and slowdowns elsewhere, likely falling to single-digit levels of growth and possibly pushing China into a rare, temporary trade deficit this year. The customs bureau recorded a trade deficit in the first quarter in 2011 – the first in seven years.
"In a single month [in 2012]there may be some deficit. But for the year as a whole this year we will still see a trade surplus, although maybe narrowed," said Janet Zhang, micro-economist at research firm GaveKal Dragonomics, who predicted overall export growth of 10 per cent to 13 per cent in 2012 and import growth slightly higher.
The declining growth in imports took most economists by surprise, coming in well below forecasts of about 17 per cent, though demand for commodities was mixed – somewhat reassuring news for commodity exporters including Canada. Imports of iron ore sat at 10.3 per cent in December, down from 11.2 per cent in November, while crude oil imports grew 5.1 per cent year-on-year, compared with 8.5 per cent in November. However imports of both unwrought copper and unwrought aluminum increased significantly, 47.7 per cent and 25.1 per cent respectively year-on-year, compared to November's results.
The coming days will provide a clearer picture of what lies ahead for China; the National Statistics Bureau is to release more data on inflation and GDP growth ahead of the Chinese New Year holiday, which begins Jan. 23.
"By now the structural change in the policy is not so huge or obvious. It will take a long time for China to change from investment-driven to consumer-driven [growth]" said Janet Zhang, micro-economist at research firm GaveKal Dragonomics, who predicts GDP growth of 8 per cent or slightly higher in 2012. "In the next few months, exports data may not be so good. But for the year as a whole, it will get better."
Special to The Globe and Mail