Chinese exports slump 25% as demand wilts

Chinese exports slumped by more than a quarter last month, as the country felt the full force of a collapse global demand that more than offset a sharp rise in domestic investment.

Economists said the headline 25.7 per cent decline in exports for February, which was worse than expected, probably masked a steeper underlying fall given the shorter number of working days in February 2008. Until last month, the rate of decline in exports had been slower than for other big Asian economies.

“Weakness in final demand has fed along the Asian supply chain and is only now having its full impact on China,” said Mark Williams at Capital Economics. If the rapid deterioration in exports continues, the government is likely to face louder calls from Chinese companies to depreciate the renminbi.

Despite the fall in exports, few economists expected China's trade balance to slide into deficit this year. However, some said they could scale back projections for the size of the country's likely trade surplus.

After dropping 43 per cent in January, Chinese imports fell 24 per cent last month. Some analysts suggested the slower rate of decline in imports was evidence that the government's recent fiscal stimulus was starting to have an effect on domestic demand.

Fixed asset investment for the first two months of the year was higher than expected, rising 26.5 per cent from a year ago, compared with an increase of 21.9 per cent in December.

Transport investment – a priority in the stimulus plan – rose 210 per cent over the same period the year before, while property investment was up only 1 per cent, a sign of the continued weakness in the housing market.

Andy Rothman, economist at CLSA in Shanghai, said that government spending on infrastructure was likely to accelerate further over the next few months. “We expect this programme to gain economic traction in March or April when project offices will have been established,” he said. “By late March, it is warm enough to dig holes and pour concrete across most of the country.”

As well as dramatic increases in bank lending in recent months, the government said cement output increased 17 per cent in January and February. Some observers suggested a recovery in domestic demand was under way.

“China will still have one of the highest, if not the highest growth rate of any major country in 2009,” said Richard Yorke, chief executive of HSBC in China. As many of the fiscal stimulus measures announced by the government were already in the budget for the next two years, the Chinese economy would be able to implement the stimulus rapidly, as many cities and provinces had already planned for infrastructure projects