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Wednesday, December 10, 2008

China: "The figures are horrifying."

“The figures are horrifying.” –Lu Zhengwei

While the figures may be horrifying, the charts aren’t. The first and steepest down trendline has been broken on the CBOE China Index. Prices are above the declining 20 day EMA (blue line) and up against resistance on the declining 50 day EMA (red line). For the bounce to become something a little bigger and more interesting the pivot high of 355 needs to be successfully challenged.

China’s Exports Decline for First Time in 7 Years (Update2): “China’s exports fell for the first time in seven years, more evidence that recessions in the U.S., Europe and Japan are driving the world’s fourth-largest economy into a slump.

Exports declined 2.2 percent in November from a year earlier, the customs bureau said in a statement on its Web site today. Imports plunged 17.9 percent, pushing the trade surplus to a record $40.09 billion.

China’s leaders pledged “more forceful measures” to help small companies and create jobs in statements within hours of the trade report. The export collapse intensifies pressure on the government to add to last month’s steepest interest-rate cut in 11 years, extend a 4 trillion yuan ($581 billion) spending plan and let the yuan depreciate.

“The figures are horrifying,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”

The yuan closed at 6.8633 against the dollar at 5:30 p.m. in Shanghai, from 6.8601 before the data was released.

Imports fell by the most since at least 1995, when Bloomberg data began, as commodity prices declined and weakness in manufacturing and construction cut demand for raw materials. The previous decline was seven years ago.

Global Growth

China’s exports quadrupled after the country joined the World Trade Organization in 2001, helping to make it the fastest-expanding major economy and the biggest contributor to global growth.

In October, exports rose 19.2 percent and imports climbed 15.6 percent. None of 18 economists surveyed on exports and 17 polled on imports predicted a decline in November.

“These are absolutely dreadful numbers,” said Mark Williams, an economist with Capital Economics Ltd. in London. “It will stoke speculation that the government will force a depreciation of the yuan. Further cuts in interest rates are pretty much inevitable.”

A breakdown in global trade finance may have been as damaging as waning demand, Williams added.

The value of exports was $115 billion, the lowest in eight months and down from a peak of $136.6 billion in July.

The yuan’s biggest one-day decline in three years on Dec. 1 prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.

‘Moderately Loose’ Policy

The central bank pledged today to maintain a “moderately loose” monetary policy and aid small businesses, in a statement after a three-day annual meeting in Beijing where China’s leaders set economic policy.

Tax cuts, a “stable” yuan and extra efforts to create jobs will be part of efforts to maintain “stable and relatively fast growth” and ensure social stability, China National Radio said after the meeting.

At stake is the nation’s contribution to global growth, forecast by Merrill Lynch to be 60 percent next year.

China’s economy grew 9 percent in the third quarter, the weakest pace in five years. Producer-price inflation was the slowest in two years last month and foreign direct investment fell 36.5 percent from a year earlier, the government said in separate statements today.

Borrowing Costs

The key one-year lending rate has fallen to 5.58 percent from 7.47 percent in September. The People’s Bank of China has also eliminated quotas limiting lending by banks.

The government will target a minimum 8 percent increase in gross domestic product next year and the creation of 10 million jobs, the state-run China Daily newspaper reported Dec. 9. Policy makers may also roll out measures to support the stock market after the CSI 300 Index fell 61 percent this year, Merrill Lynch & Co. said.

Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

About half of China’s toymakers have shut down this year, with 7,000 workers losing their jobs when Smart Union Group (Holdings) Ltd. closed in Guangdong province in October.

Toy Factory Riot

Sacked workers rioted at another toy factory last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”

Policy makers will keep reducing rates, along with the amount of money that lenders are required to park with the central bank as reserves, said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Gains by the yuan against the dollar will stall at least through the first half of next year, he said.

The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week. Commerce Minister Chen Deming denied that China would rely on the currency to help exporters, saying that “the cause of the current problem with exports is shrinking demand, not problems with currencies.”

China’s currency has gained about 20 percent since a peg to the dollar was scrapped in 2005.”


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