Tuesday, July 10, 2012

China’s External Trade Slumps, Yuan Weakens

More bad news from China as merchandise trade has been on a slump

From Bloomberg,

China’s imports rose less than anticipated in June while export growth slowed, adding pressure on the government to support expansion after inflation data yesterday showed demand softening.

Inbound shipments increased 6.3 percent from a year earlier, the customs bureau said in a statement today in Beijing, compared with the 11 percent median estimate in a Bloomberg News survey of 32 economists. Overseas sales gained 11.3 percent. The trade surplus rose to a three-year high of $31.7 billion.

The data add to signs of flagging momentum in the world’s biggest exporter as Europe’s debt crisis curbs foreign sales and the government’s property controls restrain domestic demand. Growth probably decelerated last quarter to the least in three years, with International Monetary Fund Managing Director Christine Lagarde saying China’s slowdown is among reasons the organization will reduce its estimate for global expansion.

Weakening imports are signs of a deepening slowdown of the Chinese economy.

And here is the juicy part…

China has allowed its currency to weaken this year amid slowing growth and Europe’s turmoil. The yuan fell 0.88 percent from April through June, the biggest quarterly decline since a dollar peg ended in 2005. The currency dropped 0.1 percent yesterday to 6.3714.

The increase in exports compared with a 15.3 percent gain in May. The median estimate of analysts in a Bloomberg survey was for a 10.6 percent gain. The trade surplus was wider than the $24 billion median forecast of economists.

The weakening Chinese currency the yuan could also be a symptom of hot money outflows which may be indicative, not merely of a slowdown, but of a property bubble bust in process.

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The Yuan-US dollar chart from Yahoo

Also China’s exports have also been deteriorating. More from the same article…

Export Orders

A gauge of export orders in China’s official purchasing managers’ index for June showed a contraction for the first time since January, suggesting that overseas shipments may slow in coming months.

So China’s merchandise trade conditions suggests of more slackening of her domestic economy, as well as of a pronounced slowdown in the global economy.

The cocktail mix of vacillation in politics and economic downdraft from both China and the global economy suggests that more uncertainty lies ahead and magnifies the contagion risks.

As proof of this China’s Shanghai index breached their support levels yesterday.

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Be careful out there.

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