China warns of ‘grim’ trade outlook

China has warned of a "grim" outlook for trade as the world's second-largest economy surprised financial markets by reporting a fall in exports and imports when both had been expected to rise.

The figures, which follow a government crackdown on the use of fake invoicing that had exaggerated exports earlier this year, are likely to raise fresh concerns about the extent of the slowdown in the economy and global demand.

The June data, showing that exports fell 3.1 per cent from a year earlier and imports dropped 0.7 per cent, may now reflect the true trade picture, customs officials said.

"China faces relatively stern challenges in trade currently," customs spokesman Zheng Yuesheng told a news briefing on the June trade figures.

"Exports in the third quarter look grim," said Mr Zheng.

The customs agency said exporters were losing confidence in the face of weak overseas demand, rising labour costs and a strong yuan currency.

The exports fall was the first since January 2012. Economists had expected exports to increase 4.0 per cent and imports to rise by 8.0 per cent.

China’s trade data is volatile and has been distorted by speculative capital flows across the country’s border. Doubts about the accuracy of the figures had abated slightly since the customs office and top foreign exchange regulator launched a campaign in May to crack down on fake export invoices.

Fake invoicing inflated China’s official import and export totals by $75 billion in the first four months of 2013, local media reported on June 14th, citing an internal review by China’s commerce ministry.

The customs data showed that exports to the United States, China's country's biggest export market, fell 5.4 per cent, while exports to the European Union dropped 8.3 per cent.

"The surprisingly weak June exports show China's economy is facing increasing downward pressure on lacklustre external demand," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

China had a trade surplus of $27.1 billion in June, the customs administration said, largely in line with the $27.0 billion expected by economists.

A continued slide in growth could test leaders’ resolve to tolerate a short-term slowdown in the economy while pressing ahead with efforts to revamp the economy for the longer term.

Reuters