3rd UPDATE: China's Nov Exports Fall As Global Trade Slows

BEIJING --China's exports fell for the first time in more than seven years in November while imports dropped sharply, reflecting the severity of the slowdown in global trade.

The worse-than-expected trade figures came after other data issued Wednesday pointed to the potential for deflation and a housing bust in the world's fourth-largest economy, suggesting countries looking to China to help rescue them from a prolonged slump may be disappointed.

"The whole world including China is experiencing the biggest demand shock in many years," said Merrill Lynch economist Ting Lu.

China's exports dropped 2.2% in November from a year earlier to $114.99 billion, the first monthly decline since June 2001, data issued by the General Administration of Customs showed Wednesday.

Exports changed course after a 19.2% increase in October. The latest reading was in stark contrast to the median forecast of 15% growth in a Dow Jones Newswires poll of 13 economists.

"This is a shock figure," said Ben Simpfendorfer, economist with Royal Bank of Scotland. He said the rate of contraction in China's exports will worsen in the following months, predicting exports may fall as much as 10% to 15% for a period.

Imports in November plummeted 17.9% from a year earlier to $74.9 billion, their first decline since February 2005. Imports had risen 15.6% in October, and economists had expected growth of 12% in November.

In the first 11 months of this year, exports of machinery and electrical products, which accounted for 58% of total exports during the period, rose 20% to $761.32 billion, a slowdown from their 23.2% rise in the first 10 months of the year. Single-month breakdowns weren't immediately available.

Imports of equipment used in the assembly of products for export slumped 51.5% in November, following a 19% drop in October, possibly reflecting plunging consumer demand in Western markets. That is potentially bad news for countries, including those in Asia, that are major suppliers of such goods to China.

The growth in China's exports to major trading partners fell in the January-November period, compared with the January-October period.

Exports to the E.U., China's largest trading partner, grew 21.8% in January-November, easing from January-October's 24.5% rise. Exports to the U.S., the country's second-largest trading partner, rose 9.6% in the 11-month period, slowing from an 11.4% increase in the 10-month period.

Other data issued Wednesday also reflected a slowdown in China's economy.

Figures from the National Bureau of Statistics showed the country's producer price index rose 2.0% in November from a year earlier, the lowest increase since April 2006, raising the possibility of deflation in coming months.

Growth in urban property prices, meanwhile, slowed for the 10th month in a row in November, coming in at just 0.2%, the National Development and Reform Commission said.

Additionally, actual foreign direct investment in China fell for the second consecutive month in November, sliding 36.5% from a year earlier, a much steeper drop than October's 2% decline, according to government figures.

Merrill Lynch's Lu said the easing in FDI flows could be a reflection of cash-strapped investors and dampened investor confidence in the face of the global credit crunch, as well as disappointment over the yuan's inability to weaken more.

But Lu also said China's worse-than-expected trade data could have been mostly due to "the collapse of the global financial system which provides liquidity and credit to international trade."

Nonetheless, the data are likely to raise pressure on Beijing to do more to stimulate growth.

The People's Bank of China said Wednesday that in 2009 it would maintain a moderately loose monetary policy and "actively allow monetary policy to promote economic growth."

The central bank's comments followed the end of the annual three-day Central Economic Work Conference, which was led by the head of the Communist Party and China's president, Hu Jintao. The meeting concluded that boosting domestic demand should be "the fundamental way of maintaining economic growth," even as China works to stabilize the external sector.

The conference also called for stepping up public expenditure, cutting taxes as part of structural tax adjustments, and maintaining growth in the capital and real-estate markets.

"Though we face the onerous task of maintaining growth, we can't waver from the direction of accelerating the change in the pattern of growth and pushing forward strategic economic adjustments," the conference concluded, according to reports in the state media.

The annual conference, which sets the basis for the 2009 economic work plan that lawmakers approve in March, said Beijing will continue to follow flexible economic policies, including an active fiscal policy and a moderately loose monetary policy, and reiterated the official line of keeping the yuan exchange rate basically stable.

-By J.R. Wu, Liu Li and Terence Poon, Dow Jones Newswires; 8610 6588 5848; terence.poon@dowjones.com