China’s falling imports an ominous sign for the global economy

September 8, 2015

A cargo ship waits to be loaded with shipping containers at a port in QingdaoIf the most populous country in the world, as well as the largest consumer of raw materials, starts shying away from imports, that means global demand and, by extension, the world economy is taking a real hit.

Chinese imports from the rest of the world fell nearly 14 percent in August, compared to a year ago, much more than anyone predicted in a Reuters poll.

Worryingly, it marks the tenth straight month of falling imports, the longest since the financial crisis and is part of a clear downward trend over the past several years.

The consensus has overestimated imports for eight out of the last 10 months, since they began falling on a year-ago basis.

If the world’s second largest economy isn’t importing raw materials to feed its factories, that not only is a tell-tale sign of reduced demand for the products it sells but is yet another worrying signal that all is not as well as official growth data suggest.

Commodity prices have tumbled to multi-year lows, hurting resource-dependent economies like Australia and South Africa — leading suppliers of raw materials such as iron ore, copper and aluminium.

For a whole year between November 2008 and October 2009, China imported less each month compared with a year ago, as demand for its finished goods dried up.

But almost six years later, at a time when major economies such as the U.S. and Britain are supposedly strong enough to withstand higher interest rates, falling demand from China once again is casting doubts over the underlying strength of the world economy.


Beijing is deliberately attempting to reposition its economy so it derives more of its growth from consumption than exports. During the financial crisis, it propped up the economy with massive credit for infrastructure investments that have also tapered off.

Since that change in tack, overall economic growth in China has slowed to its weakest pace in a quarter century. Fears it could slow further forced Beijing to cut the benchmark lending rate five times since November, along with a host of other measures to ease credit.

It has also sent global markets into turmoil, with many top stock markets now having wiped out gains made since the start of the year.

The People’s Bank of China had to top up its already aggressive monetary efforts to reignite the economy by devaluing the yuan in August, triggering a massive capital flight from emerging market assets, most notably Chinese stocks. Citigroup estimates investors pulled over $500 billion out of China in the four quarters to June.

The central bank is expected to weaken the currency again in coming months, spelling more trouble for importers already faced with high costs.

Along with China’s well-telegraphed intentions on where it wants to steer its economy, that could mean even weaker global trade and growth in months ahead.

(With additional inputs from Shaloo Shrivastava and Rahul Karunakar)

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