China reported surprisingly strong trade figures on Wednesday, providing fresh evidence that the world's third-largest economy is firmly on the path to recovery and that global demand is improving too.
Exports in September fell 15.2 percent from a year earlier, beating forecasts of a 21 percent fall, while imports fell just 3.5 percent -- well short of expectations of a 15.3 percent decline, the General Administration of Customs said.
Brian Jackson, an economist at Royal Bank of Canada in Hong Kong, said the slower pace of decline was good news for China's recovery because growth this year has depended too much on the government's 4 trillion yuan ($585 billion) stimulus package.
Indeed, after adjustments to take account of the number of working days in each month, exports rose 6.3 percent in September from August and imports rose 8.3 percent, Customs said.
Stronger external demand will provide an alternative source of support for growth and provide scope for Beijing to start tightening policy gradually from early 2010, Jackson said.
With imports showing strength, China's trade surplus fell to $12.9 billion last month from $15.7 billion in August. Markets had expected a figure of $17.0 billion.
Economists expect the year-on-year readings in exports to keep improving. Trade slumped after a shock to confidence from the collapse of investment bank Lehman Brothers in September 2008, creating an increasingly favorable statistical base of comparison as 2009 wears on.
Nomura said it expected the year-on-year change in exports to turn positive by December, while Barclays Capital said it could be as early as November.
Overall, export performance will be much better in the months to come. I think it's going to be sustainable and it's going to accelerate. There are some rush orders coming to China for Christmas, so I expect probably a pretty strong rebound in November and December, said Dong Tao, chief China economist for Credit Suisse in Hong Kong.
DEMAND AT HOME AND ABROAD
Yu Song and Helen Qiao at Goldman Sachs said calendar quirks -- there were more working days this September than last -- were not the only explanation for the relatively robust data.
We believe the underlying growth momentum of exports and imports has been improving, on the back of continued strength in the domestic economy as well as the increasingly visible signs of recovery in external demand, they said in a note to clients.
Mingchun Sun with Nomura in Hong Kong agreed. He said China was busy buying more investment goods to implement the infrastructure-centered stimulus package, as well as consumer goods following an unexpected spending boom.
Commodities were a driving force behind the sharp improvement in imports. China bought a record 64.55 million tons of iron ore in September, up 30 percent from August; imports of copper rose 23 percent.
The China data helped fuel gains in domestic and global stock and in commodities. The Shanghai stock market halved its gains to end up 1.17 percent, a four-week closing high, while copper futures rose in Shanghai and London.
The Chinese economy is obviously strong and that has created demand for copper, said David Moore, a commodity strategist at the Commonwealth Bank of Australia.
Annual economic growth probably accelerated to 8.9 percent in the third quarter, from 7.9 percent in the second, according to economists polled by Reuters. The figures are due on October 22.
STRONG LOANS, LEAP IN RESERVES
New loans, the lifeblood of any economy, rose a surprisingly strong 516.7 billion yuan ($75.7 billion) in September. Money supply also expanded faster than forecast, signaling that consumers and firms were spending and investing freely.
Economic activity, especially in the corporate sector, has picked up, exports are recovering and bank loans to small and medium-sized enterprises are on the rise, said Zhao Qingming, an economist with China Construction Bank in Beijing.
Currency traders started building in expectations of renewed appreciation in the yuan.
China halted the currency's three-year climb against the dollar in July 2008 to protect the country's vast export sector.
But economists say that Beijing will eventually want to let the yuan resume its rise to boost domestic demand and so help rebalance both the Chinese and the global economies -- a key aim of the Group of 20 forum, where Beijing is an influential voice.
In a potent reminder of the scale of today's imbalances, China's central bank said its holdings of foreign exchange reserves, the world's largest stockpile, jumped $141 billion in the third quarter to $2.27 trillion.
The reserves have ballooned in recent years because the central bank buys most of the dollars flowing into China -- from the trade surplus, for example -- in order to hold down the yuan's exchange rate.
(Additional reporting by Aileen Wang and Sally Huang; Writing by Alan Wheatley; Graphic by Claire Morel; Editing by Kim Coghill)