China trade collapse gives officials headache
CHINA saw exports plummet in March, exacerbating the country’s growth dilemma.
Exports dropped by 15 per cent last month compared with the same month a year earlier, according to official figures released yesterday.
Imports fell by 12 per cent on the year, reflecting a weaker domestic economy.
The country is currently in transition from investment-led to consumer-led growth, which is taking its toll on the worlds second largest economy. The government recently cut its growth target for this year to seven per cent – some way off the double-digit growth seen before the financial crisis. The World Bank also recently forecast lower economic growth for China this year.
Chinese authorities could cut interest rates and weaken its currency – the yuan – to boost short-term growth, but this risks getting in the way of its longer term plan of steering toward consumption rather than investment. Some economists think it will stick to its plan despite lower growth.
“The authorities seem intent on allowing the pain and going for a more sustainable growth pattern,” Diana Choyleva, head of macroeconomic research at Lombard Street Research, told City PM.
Choyleva believes the yuan will lose value this year but that any decline will be measured, reflecting officials’ concerns over the fragility of the country’s financial sector – especially given already significant outflows of capital. “The two reasons we think would stay Beijing’s hand in allowing a large currency fall amid record capital flight are China’s fragile financial system and its exposure to foreign currency debt,” she said.
Many Chinese firms have debts in foreign currencies, namely dollars. A fall in the value of the yuan against the dollar means those debts are more expensive to service.