Chinese exports rose strongly in January from a year earlier but tumbled from December, giving ammunition both to those who advocate a stronger yuan and those who say Beijing should keep its currency steady.
Economists said it was tough to interpret yesterday's data because of the low base of comparison in January 2009, when a slump in trade due to the global financial crisis was magnified by the timing of the country's Lunar New Year holiday.
With the holiday falling in February this year, China effectively worked one extra week this January than in 2009 – providing a springboard for a 21.0 per cent rise in exports over the year-earlier month and a record 85.5 per cent surge in imports.
The recovery in exports, if sustained, could intensify pressure for yuan appreciation, which would dent China's competitive edge in global markets.
China has effectively frozen the exchange rate around 6.83 per dollar since mid-2008 to help its exporters and cement financial stability. It has gained global market share as a result and supplanted Germany last year as the world's biggest exporter of goods. But risk-averse policymakers can also point to a 16.3 per cent drop in January's exports from those in December to justify resistance to US President Barack Obama's renewed demands for a rise in the value of the yuan, which Washington believes is unfairly undervalued.
"A single month's good export performance will not increase the chances for the government to start resuming yuan appreciation, which I don't expect will happen until the second half," said Xu Jian, an economist at China International Capital Corp in Beijing.
Indeed, offshore non-deliverable forwards (NDF) implied markets expect the yuan to rise against the dollar 2.26 per cent in the next year, down from 2.5 per cent on Tuesday.
Weakening import momentum, moreover, could reinforce investors' worries that China's clampdown on bank lending is weighing on domestic growth, and by extension depriving the global economy of its strongest engine since the financial crisis.
"January's data complicates the economic policy picture for the Chinese Government," said Tom Orlik, an analyst in Beijing with Stone and McCarthy.
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