Fall In China's Exports Eases In November

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The pace of decline in Chinese exports slowed sharply in November as global demand started picking up in line with ongoing improvement in the world economy.

Exports fell 1.2% year-on-year to $113.65 billion in November, the customs bureau said Friday, after falling 13.8% in October. That was the slowest fall since November last year, when China recorded the first decline in exports due to financial crisis. However, economists had forecast an increase of 1.4%.

Imports soared 26.7% to $94.56 billion, more than the 22.2% rise economists had expected. That follows a 6.4% drop in October. The trade surplus was $19.09 billion, down from $23.99 billion surplus in October.

China's foreign exchange rate was a hot topic for global policymakers after the global economy started showing signs of recovery. They raised calls for letting the yuan to appreciate in order to protect their exports.

But, China has kept its currency stable since the financial crisis rattled global economy. The Organisation for Economic Co-operation and Development said in November that China's exports may not recover to pre-crisis rates until its forecast period of 2011.

Recently, the People's Bank of China Vice Governor Zhu Min said China had good reason to allow its currency to depreciate during the financial crisis as the country's exports plummeted, instead it chose to keep the yuan stable. He noted that the Chinese yuan's exchange rate is not the key issue for global re-balancing. Zhu said China's exports would fall 16% this year.

China's Premier Wen Jiabao said in late November that some countries' call for yuan appreciation is unfair while they are practicing protectionism against China. In the financial crisis, "a stable yuan is helpful for the development of the Chinese economy and the world's economic recovery," he added.

Last week, China's Commerce Minister Chen Deming said a stable yuan exchange rate is vital for the global economic recovery. Moreover, the country's government said it would continue its proactive fiscal policy and moderately easy monetary policy next year and will work to improve quality of the economic growth.

ING chief Asian economist Tim Condon said Chinese authorities are likely to retain their steady USD/CNY mid-rate fixings until exports are back at $135 billion a month, which could be in the third quarter of 2010. "We are sceptical that the authorities will then resume a CNY appreciation trend, especially in view of our forecast that USD/majors will be well supported," the economist noted.

"We think the next move on the exchange rate will be a widening of the USD/CNY trading band to +/- 3.0% from the current +/- 0.5%, which would align it with the bands for the non-dollar crosses," Condon said. ING expects the timing of the move in the third quarter of 2010. Further, ING continues to see the first interest rate hike, a 27 basis points raise in the deposit rate, in the first quarter of next year.

Fall in China's exports eased notably in November as global demand started picking up in line with ongoing improvements in the world economy. (Market News Provided by RTTNews)