Weak Chinese trade data on Monday underlined the likelihood of more Beijing-backed spending to deal with the damage done to the domestic economy by firms cutting production, inventories and imports in the face of anaemic global demand.
Imports fell 2.6 percent on the year in August, confounding expectations of a 3.5 percent rise. Exports grew 2.7 percent, below forecasts for a 3 percent rise in a Reuters poll.
Such weak data is grim news in a country where exports generate 25 percent of gross domestic product, support an estimated 200 million jobs and where analysts already expect the economy to have its weakest year of expansion since 1999.
"The import surprise on the downside is very unusual. It is an alarming sign for the government and they probably saw it coming," Zhang Zhiwei, chief China economist at Nomura in Hong Kong, told Reuters.
"We've now pretty much got the full batch of August data and it's clear that the slowdown pressure is growing and that the government is feeling the need to act. I think there will be further easing in the months ahead."
Some economists fear the outlook is so poor that China may miss its official 7.5 percent growth target for 2012 without a fresh round of swift policy stimulus on top of the monetary and fiscal easing undertaken since last year and the $150 billion-worth of infrastructure projects announced last week.
The numbers - despite a bounce in the trade surplus in August to $26.7 billion - will solidify market expectations for further stimulus and monetary easing to support growth as China heads towards a once-a-decade leadership change later this year.
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The trade data was some of the worst since the depths of the global financial crisis and underline President Hu Jintao's weekend warning to leaders of Asia-Pacific economies of the "grave challenges" facing global growth.
Analysts said it was unusual for Hu to make such remarks about the economy at an international gathering and could signal a new level of concern emerging in China that is potentially a worry for the wider Asia region.
"The rest of Asia had been hoping China would come up with some sort of support, stimulus, in terms of consumption but this is not happening," said Daiwa economist Kevin Lai.
JOBS KEY TO STIMULUS
China's last officially declared stimulus package was the 4 trillion yuan spending plan unveiled in 2008, when global trade ground to a halt and at least 20 million Chinese workers lost their jobs in a matter of months as financial turmoil swept around the world.
Job losses on that scale have so far been avoided, but it remains a major risk factor for Beijing ahead of a transition of power at the top of the Communist Party that is supposed to take place against a backdrop of prosperity and social stability.
That is one key reason why analysts and investors believe the government will act decisively if data deteriorates further, but the inflationary and speculative overhang caused by the last stimulus effort are what has so far held further moves in check.
"August numbers suggest some weakness in the domestic economy, which will spur further expectations for stimulus and monetary easing. I continue to see one more benchmark lending rate cut by the end of the year," said Connie Tse, economist at Forecast in Singapore.
"However, my view remains that the fiscal stimulus and monetary easing will not be as aggressive as that witnessed in 2009/2010, due to concerns on subsequent inflationary expectations, asset bubbles, and resultant risks from rapid expansion of domestic banks' balance sheets."
Fears of the downside risks to growth though may be winning out after data on Sunday showed industrial output growth hit its weakest annual pace in August in more than three years.
Even where there was a rise in imports, analysts said it reflected grim domestic conditions - so while iron ore imports rose 7.9 percent in August from July to a three-month high, it was because buyers had turned to the international market as a collapse in prices had forced domestic producers to slash output.
China's August copper imports fell 2.9 percent from the previous month, preliminary customs data showed on Monday, reversing July's uptrend as the economic slowdown in the world's top consumer of the metal cut demand.
Crude oil imports in August fell 12.5 percent from a year earlier to the lowest daily rate since October 2010.
EXTERNAL DEMAND VITAL
The problem for Beijing is that despite deep government pockets, record tax receipts, a budget in surplus in the first half of the year and monetary policy still on the tight side, even with inflation near two-year lows, there is little policymakers can do to stimulate demand beyond their borders.
China's biggest customers are the debt-ridden, recession-bound European Union and the still struggling United States.
Without a big boost in demand from those two economies, Beijing policymakers face an uphill battle.
The focus of investors has clearly shifted though to more aggressive efforts to stimulate domestic activity to compensate for declining external demand.
They are worried that six successive quarters of slowing growth risk sliding into a seventh in the third quarter despite the "fine-tuning" of economic policies that began in November 2011.
Two interest rate cuts, the freeing of an estimated 1.2 trillion yuan for new lending by cutting required reserve ratios (RRR) at banks and a raft of tax tweaks have so far failed to halt the slide.
Instead China's factories are running at their slowest rate of expansion since May 2009, data on Sunday showed. Industrial output growth in August eased to 8.9 percent year-on-year, according to data from the National Bureau of Statistics (NBS) on Sunday.
Surveys of purchasing managers in the manufacturing sector earlier this month showed concerns growing about new business, suggesting that factories would run inventories down further before they begin to turn production up again.