CHINA'S EXPORT DECLINE STABILIZING IN

UNCLAS SECTION 01 OF 02 BEIJING 001297 SENSITIVE SIPDIS STATE FOR EAP/CM SHAWN FLATT, EEB/TPP ERIK MAGDANZ, EEB/TPP ELIZA KOCH, E HUGO YON STATE PASS USTR FOR TIM STRATFORD, AUDREY WINTER, ANN MAIN, ERIC ALTBACH DOC FOR IRA KASOFF/NICOLLE MELCHER (5130) FCS (3132) TREASURY FOR OASIA/ROBERT DOHNER NSC FOR JIM LOI E.O. 12958: N/A TAGS: ETRD ECON EIND EMIN CH SUBJECT: CHINA'S EXPORT DECLINE STABILIZING IN APRIL, IMPORTS UP, SURPLUS LOWER ¶1. (SBU) SUMMARY. China's General Administration of Customs May 12 reported a 22.8 percent drop in China's overall foreign trade to $170.7 billion versus the prior year, the sixth straight monthly decline in China's overseas trade flows. While on a year-on-year basis exports dropped by 22.6 percent to $91.9 billion and imports fell 23.0 percent to $78.8 billion, exports were almost flat from the previous month, and imports increased around 7 percent over March. After a surge in the trade surplus in March, China's global trade surplus in April dipped to $13.1 billion, partly due to rising raw material imports. The export decline is slowing, while the rise in imports seems due more to raw materials purchases than consumer demand. End Summary. MOFCOM's Chen Deming Spins the Stats ¶2. (SBU) During his visit to Washington April 27, Minister of Commerce Chen Deming offered a positive preview of April's trade data: "I have some good news," he said, "in the first 20 days of April, we have witnessed a slowdown in the decline of our foreign trade." In absolute terms and on a month- to-month basis, his assessment was correct: April's export levels ofQ91.9 billion slightly bested March exports of $90.3 billion, and AprilQmports of $78.8 billion also exceeded March imports of $71.1 billion. China Customs emphasized this monthly increase by, for the first time, releasing month-on-month unadjusted trade figures. China's Export Decline Slows ¶3. (SBU) While the unadjusted figures overstate the improvement in China's exports, most analysts agree that the decline in exports appears to have stabilized. Adjusted for China's first quarter seasonal effects -- including effects of the Chinese New Year holiday and the usual post-Christmas dip in exportQ-- Helen Qiao at Goldman Sachs Group estimates that exports fell about 1.3 percent over March, with JP Morgan's Qian Li Wang estimating the fall at 2.8 percent. While this is certainly a decline, the speed of the drop appears to have modulated. ¶4. (SBU) That said, many observers still found April's export figures disappointing. The important category of mechanical and electrical exports was down slightly, and after posting impressive monthly gains in April low-end consumer goods exports contracted almost 10 percent over March. Steel also performed poorly, down over 22 percent month on month, adjusted. High-tech exports were the only bright spot. ¶5. (SBU) By destination, exports to ASEAN, Taiwan, Korea, and the United States showed stability. On the other hand, exports to the Euro area and Japan remain weak. China's Imports Stronger ¶6. (SBU) On a seasonally adjusted basis, Qiao and Wang estimate that imports grew roughly 6 - 7 percent over March. In part this reflected a stabilization in international commodity prices, as well as initial signs of recovering Chinese demand. ¶7. (SBU) By source country, imports from Korea, Taiwan, and ASEAN recovered ground, although these imports had also fallen the most in the previous months. Imports from the EU were up slightly on a month-on-month basis, and appear to have taken BEIJING 00001297 002 OF 002 market share from the United States. Adjusted U.S. imports appear to have improved slightly over March, but at a much slower rate than China's other trading partners. COMMENT: Year-on-Year versus Month-on-Month ¶8. (SBU) Overall, the Chinese year-on-year trade data gives credence to anecdotal reports of "new mountain ranges" of 200,000 empty ocean containers building in Shanghai and other ports elsewhere in China. Reviewing January - April 2009 as a whole, China's General Administration of Customs reported China's exports were down by 20.5 percent year-on- year in the first four months to $337.42 billion and imports were off by 28.7 percent to $261.99 billion. Likewise, hopes by China's trading partners for a major rise in consumer demand-driven imports resulting from domestic stimulus spending have not yet been borne out, although the much-discussed "green shoots" may be evident. PICCUTA