Chinese trade data for June was much weaker than forecast, amid speculation that the government is trying to trade rapid economic growth for steady but slow expansion.
Exports were down 3.1 percent, in the first reported drop since 2012. Imports were down 0.7 percent, in their second straight month of decline. Exports were forecast to increase by 4 percent and imports were predicted to jump 8 percent, according to Reuters.
The fall in imports may be linked to a cash crunch resulting from central bank policies. The crunch was aimed at reducing speculative bank lending, but is also depressing domestic demand.
The shift in exports is partly due to a reporting change. The government is cracking down on false export reporting. Firms have been using the false reports to move money into the country and speculate on the appreciation of the renminbi.
However, some of the fall may be due to decreasing demand in the United States and Europe. Much of it is also due to growth shifting to other markets, as rising wages and a stronger renminbi sap China’s competitive advantage.
China’s economy is highly dependent on trade, and the weak data may prompt the government to restrict fluctuations in the renminbi. However, international pressure may limit the government’s ability to make bold moves to increase exports.
The government is caught between a need to maintain strong growth for domestic stability and a desire to deflate several bubbles in stocks, commodities, investment, and real estate. For the time being, it seems China’s new leadership is willing to allow economic slowing in pursuit of a stronger economy in the future.
Among other things, the government sees the need to reduce access to credit and shift from a capital investment growth model to one predicated on higher productivity and more domestic spending.
Analysts say that the moves make China unlikely to achieve its targeted 8 percent growth rate for the year, which could place pressure on employment. Employment is a sticky subject in China, which contains a large, mobile workforce that is highly vulnerable to unemployment. That could pose a risk to the Chinese government’s ultimate goal – political stability.