China’s weak imports point to sluggish domestic demand

HONG KONG - China's export growth slowed significantly to 4.7% in November versus 11.6% in October, posing a risk that Q4 and whole-year growth were unlikely to reach 7.5% as both domestic and external demand weakened. Imports also missed market expectations by a large margin, dropping 6.7% y/y in November, reflecting weak demand for commodities.

ANZ Bank comments that China’s November PMI had already pointed to sluggish domestic demand, but the large decline was way above its expectations. However, we cannot discount the impact of pricing effects, as global commodity prices dropped sharply in the past two months”, ANZ says. “Nonetheless, as commodity inventories remained elevated amid price collapses, the destocking process will take a long time to complete.”
ANZ says that as imports underperformed, China registered another record monthly trade surplus in November, at US$54.5 billion, compared with US$45.4 billion previously. The huge trade surplus suggested that financial arbitrage activities via the trade channel remain elevated.
“While the large trade surplus should add pressure on the RMB exchange rate to appreciate, recent strong US$ purchase flows in the onshore market indicate a risk of weakening going forward,” ANZ says.

“On the monetary policy front, we believe the RMB exchange rate will likely become more volatile given the global fluctuation of the USS. A more flexible RMB exchange rate will help China's balance of payment position become more balanced, and therefore increase the independence of monetary policy.”  www.live.anz.com (ATI).