By Winni Zhou and Pete Sweeney
BEIJING/SHANGHAI (Reuters) - China's imports shrank far more than expected in August, falling for the 10th straight month and adding to global investors' concerns that the world's second-largest economy may be slowing more sharply than earlier expected.
Imports fell 13.8 percent from a year earlier, more than the 8.2 percent drop economists had expected and an 8.1 percent decline in July, reflecting both lower world commodity prices and persistently sluggish demand at home.
Global financial markets have been rattled in recent weeks by fears that China's slowdown could drag on already sluggish global growth, while adding to deflationary pressures by depressing prices.
Indeed, the data on Tuesday showed sharp drops in imports from Australia, the European Union and Japan, which tumbled 29.6 percent, 21.7 percent and 14.7 percent, respectively.
China's imports from the United States also fell at a sharper pace than in July, dropping 5.9 percent.
"Imports are much worse than expected ... and are also a leading indicator for exports, as around half of China's exports are processing trade," said Nie Wen, analyst at Hwabao Trust, Shanghai.
"I'm not optimistic about the prospect of exports and it's unlikely China can achieve its export target this year."
Wen predicted the central bank will have to cut banks' reserve requirements at least three more times this year to pump more money into the slowing economy and counteract the impact of capital outflows as investors move their money elsewhere.
Exports in August dropped 5.5 percent from a year earlier, slightly less than a 6.0 percent decline forecast in a Reuters poll, and improving from an 8.3 percent drop in July.
That left the country with a trade surplus of $60.24 billion for the month, the General Administration of Customs said, far higher than forecasts for $48.20 billion.
HARD LANDING?
Global investors will be combing China's August data over the coming weeks to see if the economy is at risk of a hard landing, with some analysts fearing current economic growth rates are already much weaker than official data suggest.
Though most economists believe a gradual and prolonged slowdown is more likely, a stock market crash and the unexpected devaluation of the yuan currency last month have rattled confidence in the government, both inside and outside of China.
On Aug. 11, the People's Bank of China jolted markets by devaluing the yuan
China's imports of key commodities such as iron ore, crude oil and soybeans all dropped in August from July, suggesting cheap international prices are no longer enough to drive Chinese buyers to stock up as demand remains weak.
"This makes it the sixth month this year where imports have declined by more than 10 percent," wrote Angus Nicholson of IG in a research note.
"Of most concern for Australian miners is the 14 percent decline in iron import volume month-on-month. It also does not bode well for hopes that stepped-up Chinese fiscal stimulus in the second half of the year will help eat into the growing global oversupply in the iron ore market."
GOVERNMENT REASSURANCES
China's top economic planning agency said on Monday that power usage, rail freight and the property market have all improved since August, indicating the economy is stabilising.
"We are able to achieve the annual economic growth target" of 7 percent, the National Development and Reform Commission (NDRC) said.
Top officials have also tried to reassure nervous financial markets that they do no see further reason for the yuan to weaken, after the sudden devaluation last month sparked fears of global competitive devaluations.
"The yuan devaluation will have limited impact on exports," said Li Jian, head of foreign trade research at the Commerce Ministry's think-tank in Beijing.
"Exports are falling because demand is weak, not because the price is not good."
Many traders, however, believe there is political pressure to allow a deeper depreciation of the currency in coming months as the economy slows.