BEIJING, Aug 10 — China's policymakers should be braced for a second straight day of downbeat economic data today, with July trade numbers at risk of undershooting market forecasts and further raising expectations of fresh government action to shore up growth.
Fear of faltering demand from China's two biggest foreign customers – the European Union and United States – had seen economists peg back their consensus call for annual export growth to a three-month low of 8.6 per cent in a Reuters poll last week, but even that could be too optimistic.
“I think there is substantial downside risk given that China's industrial production surprised on the downside already,” Zhang Zhiwei, chief China economist at Nomura in Hong Kong, told Reuters.
“Even to our estimate of 5.5 per cent growth, which is well below the market consensus, there's a risk of downside,” Zhang added, citing huge slides in July export data from Taiwan and South Korea in recent days as key to his cautionary call.
Taiwan on Monday posted a fifth straight month of decline in exports in July, dragged down by double-digit drops in shipments to China, Europe and the United States, while South Korea's July exports were the worst in nearly three years.
Data yesterday meanwhile showed annual growth in China's factory output slowed to its weakest in more than three years in July, missing market forecasts and increasing expectations that Beijing will take further policy steps to support an economy that has seen growth sliding for six straight quarters.
Those numbers cast a darker shadow over China's total trade performance in July, with imports also at risk of falling short of forecast growth of 7.2 per cent given that much of the country's imports are destined for production lines that ultimately feed exports.
The result could see China's trade surplus surge to US$34.3 billion (RM102 billion) in July, marking its highest since January 2009.
Economists had forecast a rebound in imports in July versus June on the basis that factories may be rebuilding inventories as surveys of purchasing managers across China had signalled a stabilisation of output and that the world's second-biggest economy had passed its cyclical low point.
Get to the punch
Alistair Thornton, China economist at IHS Global Insight in Beijing, reckons even though the inventory de-stocking might be close to an end, the amount of drag still evident in the economy means any rebound in growth will be shallow and volatile – and needing more government policy action to ensure it arrives.
“The government needs to transform its current stimulus push into a stimulus punch,” he wrote in a note to clients.
Beijing has refused to describe its pro-growth policy tweaks since the autumn of last year as stimulus, calling it a process of “fine-tuning” – albeit one that has cut interest rates twice, freed an estimated 1.2 trillion yuan (RM570 billion) for bank lending and fast-tracked state-funded infrastructure projects.
Fine-tuning has so far failed to convincingly arrest a slide in growth that has persisted for six successive quarters and which is likely this year to see China chalk up its slowest full year of growth since 1999, at 8 per cent according to the latest Reuters poll.
“The government might not want to pile on debt and revert to grand state-led stimulus, but it increasingly appears that there are few other choices,” Thornton wrote.
Stronger-than-expected import growth, however, would be a sign that government support measures unveiled so far are gaining traction and bolstering growth.
China's Commerce Ministry said last month that it was confident of achieving the government target of 10 per cent growth in total trade this year, though Commerce Minister Chen Deming said earlier trade would hit the target only “if lucky”.
China's top leaders pledged last week to take steps to diversify export markets in the second half of the year to support an economy that saw its slowest pace of growth in more than three years in the second quarter.
China's economic growth in the first half of 2012 was fuelled mainly by domestic consumption and capital spending with exports a net drag on performance. — Reuters