Reference no: EM131755834

China Drops Trade Target as Global Growth Uncertainty Increases

China didn’t announce a target for increasing trade at the national legislature’s opening session this year, a departure from tradition that underscored an increasing uncertainty over the global growth outlook.

The absence of a trade target in any of the reports released at Saturday’s event may reflect the difficulty forecasting the number as global growth prospects falter, according to HSBC Holdings Plc and BNP Paribas SA. China missed last year’s target of 6 percent trade growth and this year’s work report contained only generalities, saying the nation aims for "a steady rise in import and export volumes."

China is grappling with weakening trade, rising debt and capital outflows that have spurred unease about the nation’s economic prospects. The slowest growth in 25 years prompted officials to tweak monetary policy to “prudent with a slight easing bias” last month and on Monday the central bank cut the ratio of reserves banks must lock away.

“Trade Malaise”

“The lack of explicit export forecasts reveals caution among Chinese officials about world trade this year,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “China’s export engine has sputtered of late not because of a lack in competitiveness but due to weak global demand. This raises the pressure for a coordinated global response to the current trade malaise.”

China may be wary of setting an ambitious trade forecast amid a weak global outlook on concerns it risked raising expectations that it would use currency depreciation to boost shipments, Neumann said. The International Monetary Fund in January cut its world growth outlook to 3.4 percent this year, down from a projected 3.6 percent in October.

“The global economy is experiencing profound changes and struggling to recover,” Premier Li Keqiang’s report to the legislature said. “Growth in trade is weak; there are fluctuations in the financial and commodity markets; geopolitical risks are rising; and there are increasing instabilities and uncertainties in China’s external environment.”

China “must be fully prepared to fight a difficult battle” as it faces tougher challenges amid downward pressure on the economy, the report said.

Missed Target

Trade last year fell short of the government’s 6 percent expansion objective as imports slumped 14.2 percent while exports decreased 2.8 percent. It was the first time since 2009 that both imports and exports fell for the year.

The absence of a trade target may be because policy makers missed last year’s target by too much, said Chen Xingdong, chief China economist at BNP Paribas in Beijing.

"They don’t have confidence to put down a number," said Chen. "I would agree it has become much harder to predict growth numbers in China."

In your opinion, what is the article taking about?