2nd LD-Writethru: China Focus: October exports drop narrows, pressure remains

China's exports growth narrowed from previous drops in October while imports accelerated growth, however weak global demand might weigh on future trade growth.

Exports measured in yuan fell 3.2 percent year on year in October, a slower pace of decline than the 5.6 percent fall in September, while imports in yuan rose 3.2 percent, up from 2.2 percent last month, according to figures from the General Administration of Customs on Tuesday.

Stripping out the impact of yuan depreciation, exports in U.S. dollar terms fell 7.3 percent year on year in October while imports slipped 1.4 percent.

China's trade surplus in dollar terms was about 49 billion U.S. dollars, up from 42 billion U.S. dollars in September. The surplus is in contrast to a larger-than-expected decline of 45.7 billion U.S. dollars in China's foreign reserves in October, indicating quicker capital outflows in the month.

Stronger import figures were a positive sign on domestic demand as import volumes of commodity goods such as crude oil, coal and iron ore increased in the first ten months, according to Deng Haiqing, chief economist with JZ Securities.

Foreign trade with China's largest trade partner the European Union and the third largest one ASEAN gained year on year in the first ten months, while it dropped with the United States, its second largest trade partner.

World trade will grow more slowly than expected in 2016, expanding by just 1.7 percent, well below the April forecast of 2.8 percent, recording the slowest pace of trade growth since the financial crisis of 2009, according to the latest WTO estimates.

October trade growth fell short of market expectations, especially amid favorable moves in China's exchange rate, which should have boosted competitiveness.

The Chinese currency has declined over one percent against the U.S.dollar since its Oct. 1 inclusion in the IMF's SDR basket, breaking through the critical 6.7 threshold.

It is possible the weakness in the yuan has been insufficient to offset the drag on competitiveness from past gains, and protectionism is likely having an impact, with G20 members introducing more than 1,200 trade control measures over the last five years, Bloomberg Chief Asia Economist Tom Orlik pointed out in a research note.

An official index predicting future trade growth prospects ended previous rises in the past three months by dropping a marginal 0.2 points, indicating upcoming trade pressure.

Readings on export orders in both the National Bureau of Statistics and the Caixin PMIs swung back into contraction territory in October, pointing to weaker external demand ahead.

Even so, Bloomberg Intelligence Economics continues to believe that a weaker yuan, resilient global demand, and China's other policy measures to support competitiveness, such as freezing the minimum wage, will drive a return to modest export growth, Orlik added.

China did not specify a trade growth target for 2016. The government pledged last month to continue to implement supportive polices to cut red tapes and reduce costs for trade firms in the rest of the year to stabilize trade growth.

The downward pressure for trade growth still remains for the fourth quarter of this year due to a higher comparison base from last year, according to the latest report from the Ministry of Commerce.

Exports are expected to stabilize in the fourth quarter with booming business due to approaching holidays such Christmas, and imports might remain marginal growth as processing imports continue to drop, the report added. Endi