China Jan yuan-denominated exports down 6.6 pct y/y

Zhou Xiaochuan governor of the People's Bank of China

Capital outflows increased to $158.7 billion in December – the most since September – and were $1 trillion past year, according to estimates from Bloomberg Intelligence. The decrease was also below the poll’s median forecast for a 4.6 per cent decrease.

“It’s definitely weaker than the market expected”, said Standard Chartered PLC economist Shuang Ding.

China reported a record trade surplus in January as imports slumped more than exports, relieving pressure on a resurgent yuan despite worrying signals for the economy.

He dismissed fears that China’s currency reserves were declining too fast, saying: “It is normal for foreign reserves to rise and fall as long as the fundamentals face no problems”.

The onshore yuan rose to a five-week high on Monday after the People’s Bank of China set the mid-price higher so the currency can catch up with the rise of the offshore yuan which went up last week when trading in the onshore yuan was shut due to the week long Lunar New Year holiday.

E-Mini futures for the S&P 500 added 0.6 per cent, while the cash market is closed for a holiday on Monday.

Traders said the midpoint’s strength reflected the dollar’s global weakness last week. Imports tumbled 18.8% from a year ago, below 3.8% decline expected by the street.

Chen Yangfan, a salesman with Chinatop Home Products Manufacturing Co., which exports small appliances and kitchenware to the US and Europe, said business recently has been flat at best. Apart from selling dollars, the monetary authority also gave guidance to some Chinese lenders in the city to suspend yuan lending to curb short selling, a move that contributed to the surge in the overnight interbank lending rate to 66.8 percent on January 12, an all-time high. “The economy isn’t good and competition is pretty fierce”.

Surging capital outflows from China have become a source of growing global concern and have left Beijing scrambling to support the currency.

If there was further proof needed that the China’s Yuan should be weaker, then today’s incredibly weak trade data for January should do it.

Trade with China’s three biggest trade partners, the European Union, the United States and the Association for Southeast Asian Nations (ASEAN), all dropped around 10 percent.

Imports extended a stretch of declines to 15 months, falling 14.4 per cent, leaving a trade surplus of 406.2 billion yuan (S$86.68 billion).

“Import channels could have been used for some financial arbitrage activities”, said ANZ Bank in a report.

Companies in China shut down for the weeklong holiday, which falls at different times in January or February.

Volatility has flared again at the start of this year.