China hard landing fears mount as trade data shows shock fall

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China was hit by an unexpected drop in exports and imports last month, adding to fears that the world’s second largest economy is still heading towards a so-called hard landing.

Data from the General Administration of Customs shows Chinese exports in June were down 3.1 per cent from one year year while imports fell by 0.7 per cent. The fall left China with a $27.1bn trade surplus in June.

China is aiming for trade growth of 8 per cent this year, although the unexpected fall in June could place this target in danger. Export data had been strong at the start of 2013, but has fallen after the authorities cracked down on fake invoices that inflated data in the first four months of the year.

Société Générale economist Wei Yao told the FT: “Exports were too strong earlier in the year, now it’s a payback.

“But it does show that external demand for Chinese goods is really suffering and that leads to the point that Beijing needs to rethink its currency policy. There is no doubt that the renminbi is too strong.”

Yesterday, the International Monetary Fund said it expects the Chinese economy to expand by 7.7 per cent in 2013. This is down from the 8 per cent growth it forecast in April.

Last month’s Bank of America Merrill Lynch Fund Manager Survey shows global asset allocators regard a hard landing in China as their top tail risk, with 32 per cent of investors citing this and commodity collapse as their biggest fear.

Allocations to emerging markets “collapsed” during June as investors took a net 9 per cent underweight to the region on the back of these fears. Just four months ago, a net 43 per cent of fund managers had an overweight to emerging markets.