Sluggish trade growth expected to continue

Weak trends may prompt government to consider monetary policy-loosening measures

The slowdown in China's trade growth during September is a clear signal that the nation's export sector will face tough times in the months ahead. With external demand also slowing, the government may have to fine-tune its tightening policies during the fourth quarter.

Exports from China rose by 17.1 percent year-on-year in September, compared with 24.5 percent in August. The slowdown was mainly because of sluggish demand from the European Union and the United States.

In September, imports under the category of processing trade, which is often regarded as an indicator of future growth of exports, remained sluggish. As a manufacturing powerhouse, China engages a lot in processing trade - in which the country imports raw materials and half-finished goods, processes them and exports finished products. With imports used for processing trade remaining moderate, future export growth is likely to wane.

Amid such a lackluster trend for exports, China is likely to slow the pace of yuan appreciation to reduce the fallout on exporters who are already grappling with tight liquidity and sluggish international demand.

Yuan appreciation moves gathered momentum during the first half of this year, as it became the prime tool for policymakers in their fight against inflation.

In September, the consumer price index, a major gauge of inflation, grew 6.1 percent year-on-year, dropping from the three-year peak of 6.5 percent in July.

Since China's inflation has showed signs of moderation and is expected to abate further in the fourth quarter, the necessity for the nation to appreciate the yuan faster to offset the effect of imported inflation is diminishing.

Apart from the yuan move, the government may also encourage banks to lend more to small- and medium-sized enterprises (SMEs), exporters particularly, to avoid massive shutdowns - something that has occurred in Wenzhou. The private sector in Wenzhou is often deemed the barometer of China's export sector. The collapse of Wenzhou SMEs has reminded the government of the side effect of its too harsh, one-size-for-all tightening policies.

Although an overall monetary loosening is not going to happen any time soon, China is expected to loosen the grips on credit for exporters and SMEs.

On the import side, overall imports slowed in September. To be specific, they increased by 20.9 percent year-on-year, down from 30.2 percent in August.

But the growth of imports continued to overtake that of the exports, resulting in a decrease in the trade surplus for the second straight month in September. The monthly surplus went down by 12.4 percent year-on-year to $14.51 billion (10.56 billion euros), pointing to a rather healthy development of China's trade as the country strives to balance its trade and cut the reliance on exports for economic growth.

What is worth attention is the trend that the growth of imports under the category of the general trade remained quite robust last month. They grew more than 30 percent year-on-year.

This should be music to the ears of economies including the EU and the US, because such high growth rates mean that the Chinese demand for products is still strong.

General trade, which mainly tracks imports and exports of finished products ready for consumption, accounts for a bit more than half of China's overall trade. If the imports of China's general trade grow, developed economies such as the EU and the US, which are good at making high-end products, will definitely benefit.

The author is a financial analyst based in Shanghai.