Tuesday, July 10, 2012

China's Drop in Imports Not a Sign of Significant Slowdown

At first glance it appeared after the numbers came out in China concerning that the decline in imports pointed to a disaster in China. But that wasn't and isn't the case, but is rather a reflection of a commodity management strategy by the country.

When China announced its growth in imports had been slashed by almost half of analysts projected in June, traders and investors pushed down the price of commodities and equities, as coupled with weak financial reports from American companies, seemed to point to a catastrophic quarter.

Imports in China fell to 6.6 percent year-over-year in June, dropping from the projected 12.7 percent analysts were looking for.

Exports by the Middle Kingdom, on the other hand, jumped to 11.3 percent, easily surpassing the estimated 9.9 percent analysts estimated.

Most of the decline in imports to the company are a result of Chinese buyers building up commodity inventory over the last several months, which resulted in the need to use up those inventories before buying large in the market again.

For June crude oil and copper imports appeared to be hammered, with copper imports falling by 17.5 percent and crude by 15 percent from the prior month. Most should have known that there was something unusual about those numbers, even with the strained global economic situation we're in.

Expectations are China imports will probably be weak for several months while it works down its inventory.

It was noted by analysts covering China that the low imports have nothing to do with consumer spending in China, as it does in the United States, because Chinese imports are mostly commodities used in for infrastructure projects and manufacturing.

For the annual goal of a growth of 10 percent for China in 2012, China will likely reach it, although economically devastated Europe, along with the weak American economy, make it unlikely China's goal of export growth of 10 percent will be met. Exports are probably going to be more in the 8 or 9 percent range for the country.

Chinese imports should climb in the second half as commodity inventory is used up.

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