BEIJING (Reuters) - China’s imports surged in October as exports grew at their slowest rate in months, suggesting efforts to tilt the economy toward domestic demand may be offsetting the external weakness that has dragged on economic growth this year.
Customs figures showed import growth of 28.7 percent year on year in October, well ahead of the 23.0 percent forecast and far in excess of September’s 20.9 percent growth rate.
Headline growth in exports meanwhile was its most sluggish in eight months, but strip out the traditionally volatile month of February and October’s growth of 15.9 percent was the slowest since November 2009 when they shrank.
“We were expecting quite a deceleration as external demand continues to decline in Western economies,” said Donna Kwok, an economist at HSBC in Hong Kong. “But the key thing to look at here is the strength of the domestic demand factors as imports grew nearly 29 percent.”
Markets showed scant reaction to the data since investment sentiment is being driven by events in Europe.
Imports from all three of China’s key trading partners surged.
The rate of import growth from the United States accelerated the fastest at 20.5 percent over a year earlier, jumping by 7.6 percentage points from September’s pace.
Imports from resource-rich Australia grew at 36.7 percent versus September’s 33.4 percent, while European Union imports rose 28.2 percent versus 25.7 percent previously.
The surprise imports surge limited October’s trade surplus to $17 billion, much lower than a forecast for $24.9 billion.
That may go some way to satisfying critics who say China keeps its currency weak to support exports — despite evidence to the contrary in the form of an appreciation of the yuan of some 40 percent in real effective exchange rate terms since 2005 when Beijing abandoned a long-standing currency peg.
“The trade surplus remains at a relatively low level compared with the same period in the previous years, which could help reduce some appreciation pressure on the RMB,” said Nie Wen, an analyst at Hwabao Trust in Shanghai. The RMB refers to the renminbi, China’s currency.
Indeed, China’s trade surplus is on track to narrow for a third straight year from $183 billion in 2010.
China’s government has been working hard to wean the world’s number two economy off of what many analysts say is an addiction to export-led growth.
Others dismiss the notion that exports are so significant to Chinese growth, pointing instead to the infrastructure and consumer demand created by massive urbanization that draws millions of rural workers into China’s fast-expanding cities every year.
The rate of fixed asset investment growth — a principal driver of economic expansion in China — was running at 24.9 percent year on year in the first 10 months of 2011, data showed on Wednesday, again underscoring domestic economic resilience.
That kind of expansion in infrastructure spending though could also distort the view of the underlying rebalancing of growth and the ability of the consumer sector to compensate for an extended sharp decline in external demand.
“I think the underlying (export) weakness is perhaps even weaker,” said Li Cui, an economist at Royal Bank of Scotland in Hong Kong. “ My estimation is that the real growth could only be around 7-8 percent, adjusting for export prices.”
“The strength of imports is stronger than expected. It shows the underlying industrial demand is fairly solid. Also, it’s likely that the inventory building still continues, partly because of the declining global prices. The producers take this opportunity to build their inventories,” she added.
But it’s that inventory build that signals the possibility of risks ahead to analysts at IHS Global Insight, who are concerned that final domestic demand may not keep pace with the level of stock building.
“Going forward, we’d expect import growth to slow as the lag of monetary policy catches up with the economic cycle,” IHS senior analyst Ren Xianfang wrote in a note to clients.
China has hiked interest rates five times since October 2010 and raised the amount of reserves banks must park at the central bank — thus cutting the amount of credit available in the economy — nine times over the same period in a bid to tame inflation that hit a three-year peak of 6.5 percent in July.
If that tightening has not yet fully filtered through into the domestic sector, there could be a couple of particularly poor quarters of growth ahead as the impact from a sharply-slowing external sector are amplified.
The rate of growth of China’s exports to the European Union and Australia both declined year-on-year in October versus September, according to Reuters calculations — down to 7.5 percent from 9.8 percent and to 16.1 percent from 21.4 percent, respectively.
Exports to the United States meanwhile increased by 13.9 percent year-on-year in October versus September’s 11.6 percent expansion.
China’s leaders have begun talking in recent weeks about “fine tuning” macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.
And it’s that sense that the leadership has already turned its attention to growth and is gradually recalibrating policy in that direction which economists say reduces the risk of a hard economic landing for China.
“Domestic demand is still resilient and may suggest that the economy would only slow down in a gradual way,” said Wang Hu, an analyst at Guotai Junan Securities in Shanghai. “But (there is) no risk of a sharp slowdown.”
Reporting by Aileen Wang, Kevin Yao; Writing by Nick Edwards; Editing by Neil Fullick