The Horrible Chinese Import Number Isn't As Scary As It Seems

Chinese imports contracted 2.7 per cent year-over-year in August, against expectations of a 3.5 per cent rise. But analysts are warning that the number may not be as bad as they first seem.

Bank of America’s Ting Lu explains that declining commodity prices played a role in the contraction in imports. “Falling import prices of oil and iron ore continued to contribute to the slowing YoY import growth in August. In value terms imports of iron ore fell 20.9 per cent on the year, and value of oil imports declined 20.5 per cent in August, after rising 1.4 per cent the previous month.” Moreover, Lu writes that declining commodity prices present the country with an opportunity to accumulate inventories for the future at lower costs.

Societe Generale’s Wei Yao notes that the year-over-year expectations were already lofty since they were up 30.4 per cent YoY in August 2011. 

That being said imports act as a crucial indicator for hard-landing watchers since they have a significant domestic demand component.

“Slowing real domestic demand in China was the key factor, consistent with the soft activity data in the past few weeks,” according to Yao.

So what were the worrisome signs? First, on a monthly basis imports contracted 4.6 per cent, reflecting a fourth consecutive monthly slowdown. Second, Lu writes that despite decreasing commodity costs, volumes of imports were lower.

Iron ore imports increased just 5.7 per cent YoY in August, compared with 6.1 per cent in July, and volume of crude oil imports contracted 12.5 per cent YoY, after being up 12.4 per cent in July. 

This chart from Societe Generale shows the trajectory of import and export growth since 2004:

China august import chart

Photo: Societe Generale

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