THE SLOWDOWN OF CHINA’S TRADE

CHINA TRADE GROWTH SLOWS TO 2-YEAR LOWS IN DECEMBER

Koh Gui Qing

Reuters, January 10, 2012

BEIJING (Reuters) - China's exports and imports grew at their slowest pace in more than two years in December as foreign and domestic demand ebbed, data showed on Tuesday, bolstering expectations of more policy action from Beijing to support the world's number two economy.

Annual export growth of 13.4 percent in December was in line with expectations, albeit the slowest since November 2009 except for a February distortion caused by Lunar New Year holidays.

But it was a big downside surprise for import growth that caught investor attention, sinking to a 26-month low of just 11.8 percent year-on-year versus the 17 percent forecast by economists in the benchmark Reuters poll.

"We thought imports would surprise quite a bit on the downside and generally the implication is negative. Domestic demand is slowing down very quickly," Zhang Zhiwei, chief China economist at Nomura in Hong Kong, told Reuters.

Zhang said the scale of drops in annual import growth for domestic consumption, at 13.5 percent in December versus November's 27.4 percent, and imports for processing trade at 6.2 percent versus about 11 percent in November, were crucial.

"That means going forward for the next couple of months exports will decline with a very high certainty," he said. "This trade data basically confirms our view that the first quarter is going to be very tough."

The December trade data is a key link in a series of activity indicators to be published by China over the next two weeks, including fourth-quarter gross domestic product that is likely to show the world's second-largest economy suffering its worst quarter in 2- years.

Financial markets took the data in their stride, with hopes that it will prompt a relaxation of monetary policy offsetting fears over slowing growth.

Gains in Chinese stocks accelerated modestly after the data, with Shanghai's main index up around 1.6 percent by 0515 GMT, broadly in line with other Asian markets outside Japan, while the yuan strengthened to 6.3122 per dollar.

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