China’s exports slump in June; worst reading since recession

China’s economic picture darkened in June as exports posted their biggest monthly drop since the recession.

The unexpectedly weak June data, reported by Chinese officials Wednesday, suggests that the world’s second-largest economy is still facing sluggish demand for its goods and could slow further than government and private forecasts.

Chinese exports fell by 3.1% last month compared with a year ago, to about $174 billion. It was the biggest decline since October 2009. Analysts on average were expecting an increase of about 4%.

The June exports volume was down an even bigger 7.4% compared with the previous month, seasonally adjusted, and it hasn’t fallen that much since January 2009, said Capital Economics. Chinese exports to the European Union fell most sharply, down 8.3% from a year ago. Shipments to the U.S. and Japan were off more than 5%.

The overall slump in exports may have been exaggerated by a government crackdown on over-invoicing and other tactics to avoid capital controls. The appreciation of China’s currency also may have contributed to the drop, economists said.

But the main culprit appears to be an underlying slowdown in demand. Chinese exports of mechanical and electrical products fell nearly 5% versus a year ago, and shipments of high-tech goods skidded 3.1%. Other categories such as clothing saw moderate growth, but this won’t be enough to offset weakness in manufacturing, said Alaistair Chan, a China analyst for Moody’s Analytics based in Sydney.

China’s total imports, meanwhile, slipped 0.7% last month from a year ago, reflecting a drop in products for processing and re-exporting. The country’s trade surplus rose to $27.1 billion in June, up from $20.4 billion in the prior month but lower than the $31.7-billion surplus in June 2012.

The disappointing trade numbers indicate that China’s second-quarter economic growth may come in below the first quarter’s 7.7% rate, making it harder for Beijing to meet its 7.5% target for the full year. China says its economy grew by 7.8% last year, down from 9.3% in 2011 and more than 10% in 2010.

Analysts noted the trade slowdown could put pressure on Beijing to provide policy support for exporters, including weakening China’s currency -- a move that won’t sit well with the U.S. and some other trading partners.

For that very reason, economists at UBS Investment Research said, depreciation “is deemed unacceptable internationally,” with China’s central government not likely to use the currency to support the economy. Looking ahead, the UBS analysts said they see moderate exports growth for the rest of this year.

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