China Exports, Imports Fall More Than Expected

BEIJING—Chinese trade started 2016 on a weak note as January exports declined far more than expected in the face of weak demand and slower production ahead of the just-ended Lunar New Year holiday.

The General Administration of Customs reported Monday that exports fell 11.2% year-over-year in January, following a drop of 1.4% in December. The January export figure was well below a median forecast for a 2.4% decrease of 13 economists surveyed by The Wall Street Journal. Imports last month declined 18.8%, compared with December's 7.6% decline. That was also well below expectations for a 4.6% decrease.

"It's definitely weaker than the market expected," said Standard Chartered PLC economist Shuang Ding. "There's still no improvement from the trade account."

Because imports declined even more than exports, China faced a greater-than-expected $63.29 billion trade surplus in January—a monthly record which followed December's $60.1 billion surplus.

The import drop came despite a sharp jump in imports from Hong Kong that some economists suggest is largely due to companies manipulating invoices to avoid China's restrictions on capital leaving the country.

Economists warn that January and February data must be viewed with caution as the floating Lunar New Year holiday tends to greatly disrupt consumption and production patterns around China.

The Shanghai Composite Index, which reopened Monday after the weeklong holiday, was down 1.5% in early trading.

Economists said weak global demand continued to weigh on exports in China and other Asian nations. South Korea, which serves many of the same U.S. and European markets as does China, saw an 18.5% year-over-year decline in its January exports, its biggest monthly drop in several years. And a subindex of China's official purchasing managers' index that tracks new export orders has been in contraction for 16 consecutive months.

"We do not think underlying trade conditions are improving," said Citibank in a research note.

Chen Yangfan, a salesman with Chinatop Home Products Manufacturing Co., which exports small appliances and kitchenware to the U.S. and Europe, said business recently has been flat at best. He said he hopes Beijing will improve tax rebates to help exporters like his company, which is located in southern Guangdong province, adding that a weaker yuan against the dollar may help boost overseas demand later in the year.

"The outlook for the market and export sales is not ideal," Mr. Chen said. "The economy isn't good and competition is pretty fierce. Actually, the situation in most areas isn't very good at all. I just hope things will improve after the Lunar New Year."

In an interview with Caixin Media Co. reported over the weekend, Chinese central bank governor Zhou Xiaochuan said that Beijing has no intention of engineering a large depreciation of the yuan to boost exports. While some exporters were using trade flows to move capital offshore, this would be transitory as companies will eventually repatriate the proceeds to pay wages and meet other obligations back in China, Mr. Zhou was quoted as saying.

Chinese factories often stockpile goods in January to meet orders after they return to work, but this year they purchased less, one reason imports fell sharply and a sign of further trade weakness ahead, economists said.

January imports were also weighed down by falling commodity prices, especially oil—which tend to make trade flows look smaller when measured in dollar terms, even when volumes remain relatively constant—and by weak demand.

"Import numbers are in line with the 'supply-side economics,' with a focus to cut outdated overcapacity, and also imply that the domestic investment should remain weak," said Commerzbank AG economist Zhou Hao.

Economists said they would continue to look closely at imports from Hong Kong following a sharp December jump in shipments to China from the former British colony that they attribute to so-called overinvoicing, or efforts by investors to circumvent capital restrictions and move money out of the country.

Imports from Hong Kong stood at $1.65 billion in January, more than double from a year earlier, according to data from the Chinese customs bureau, while exports to Hong Kong were $22.74 billion in January, down 2.6% year on year.

"Import channels could have been used for some financial arbitrage activities," said ANZ Bank in a report.

Overinvoicing was also widely regarded to have distorted trade data for a period about two years ago, though that time it was due to companies trying to get capital into, rather than out of, China.

Chinese consumers are only permitted to purchase $50,000 worth of dollars each calendar year. But manipulated foreign trade deals offer a way around tightening restrictions, say economists.

In an example of how this is done, a Chinese company might import 100,000 widgets at $5 apiece from a Hong Kong partner or subsidiary company, paying them $500,000. It then exports the same widgets back to Hong Kong at $1 apiece, receiving $100,000 from the Hong Kong entity. The goods are back where they started, but $400,000 has now moved offshore.

Grace Zhu and Liyan Qi contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

February 15, 2016 00:15 ET (05:15 GMT)

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