China's export and import growth, as well as lending by Chinese
banks, weakened sharply in July, damping hopes for a third-quarter
rebound.
The figures released Friday, together with disappointing
industrial-output data a day earlier, indicate that expectations the
economy bottomed out in the second quarter may be misplaced, and that
growth in the third quarter may not be much better. Second-quarter
growth was the slowest since the first quarter of 2009.
"The economic recovery this time will likely be a slow and painful
process," said Deutsche Bank economist Ma Jun. "It is very uncertain
when the economy will recover."
China's July trade surplus narrowed to $25.1 billion from $31.7
billion in June, data from the General Administration of Customs showed.
That was well under the $35.2 billion median forecast of 14 economists
polled earlier.
Exports were up just 1% from a year earlier, off from June's 11.3%
and far below the 8% economists expected. Imports were up 4.7%, slowing
from June's 6.3% and missing the 7% forecast.
Also Friday, the central bank reported
that new yuan loans by Chinese financial institutions totaled 540.1
billion yuan ($85.1 billion) in July, down from 919.8 billion yuan in
June. The median forecast of 14 economists polled earlier was 665
billion yuan.
Third-quarter growth in China's gross domestic product is likely to
be near that of the second quarter, said Deutsche Bank's Mr. Ma,
contrary to widespread earlier expectations that the second quarter
would mark a bottom.
The GDP was up 7.6% in the second quarter from a year earlier, the
slowest rate of growth since the first quarter of 2009. First-quarter
growth was 8.1%.
"The set of weak macro data puts more pressure on the government to loosen policies," said Nomura economist Zhiwei Zhang.
But Beijing is unlikely to roll out massive stimulus measures or
loosen its controls on the property sector, Mr. Ma said, having learned
from the sharp increase in property prices triggered by its 2009
stimulus.
The People's Bank of China could cut its reserve requirement ratio by
0.5 percentage point as early as Friday, Liu Li-Gang, Greater China
Chief Economist at ANZ.
"The weak data suggest that PBOC policy easing so far has not been
sufficient," Mr. Liu said. "Going forward, they will have to be more
aggressive cutting the reserve requirement ratio." He added that there
should be two further 0.5-percentage point cuts in the third quarter.
The weak July data will likely push authorities to allow more credit
expansion in future months, Société Générale economist Yao Wei said.
"They may do more in the coming months—we will see more easing, but it
will be gradual and incremental."
The persistent crisis in the euro zone and still-shaky economic
growth in the U.S. were a drag on demand for Chinese goods. Exports to
the European Union in July were down 16.2% from a year earlier, while
shipments to U.S. were essentially flat, up just 0.6%.
Compared with June, China's exports in July were down 1.8%, while
imports were up 2.3%, the customs bureau said. Seasonally adjusted, it
added, both were down from June—exports by 4.2%, imports by 5.8%.
At a press briefing Friday, Vice Commerce Minister Gao Hucheng said
China would face "pressure" achieving the official target of 10% growth
in exports and imports this year.
Asian markets reacted negatively to the trade data. Hong Kong's Hang
Seng Index extended losses after the announcement and ended the day down
0.7%. The Shanghai Composite gave up a modest rise from earlier in the
day to end the session down 0.2%.
The Australian dollar dipped after the data, but then bounced back;
it was recently at $1.0522. Australia's S&P ASX 200 slipped 0.7%,
with commodity stocks lower: BHP Billiton
fell 0.3%, Rio Tinto
0.7% and Fortescue Metals Group
1.6%. High-yield stocks—such as banks and telecommunications companies—continued to pull back from their recent gains.
Other
regional currencies such as the New Zealand dollar and the South Korean
won fell against the U.S. dollar after the data were released.
