China’s exports, a major economic growth engine in the first half of the year, missed expectations and grew by only 7 per cent in July from a year earlier, to US$300.56 billion.
Analysts pointed to the impact of lower prices and some fading of global discretionary demand as the reading fell short of the expected growth of 9.5 per cent surveyed by Chinese financial data provider Wind. The reading was also lower than the 8.6 per cent increase in June.
“Growth in export values slowed last month, but this was mainly due to lower export prices. Export volumes remained near record highs,” said Zichun Huang, a China economist at Capital Economics.
“After accounting for changes in export prices, and for seasonality, we estimate that export volumes softened a touch but remained close to record highs.”
More discretionary items, though, showed weakness last month with contractions in exports of furniture, handbags and suitcases, clothing and toys, said analysts at HSBC. However, electronics exports outperformed as laptops, LCD displays and mobile phones recorded pickups in year-on-year terms.
With leading indicators like the new export orders purchasing managers’ index pointing to further weakness in global demand, combined with [Wednesday’s] miss in exports growth, we remain cautious on the global demand revival outlook,” said the analysts at HSBC.
“Some of the softer momentum in exports is not entirely unexpected, given increased trade tensions and a relative preference for services over goods for global demand.”
China’s imports beat expectations and rose to a three-month high of 7.2 per cent from a year earlier in July, compared with the 2.3 per cent decrease reported in June, with some analysts pointing to a front-loading of orders and increased fiscal policy.
They also said that the lower base for comparison played a role as imports bounced back, and that volumes did increase on a month-on-month basis.
“Imports rose more than expected last month, and we think they will pick up further in the coming months as a step-up in fiscal support should boost import-intensive construction activities,” added Huang at Capital Economics.
Some of the order front-loading, focused on electronics imports, might be due to uncertainty surrounding a possible ramp-up in trade restrictions amid reports that the United States may be looking to unveil new rules around the exports of semiconductor-making equipment, said analysts at HSBC.
“Imports were also partly buoyed by improved domestic demand, which was driven by an accelerated pace of government bond issuance in recent months,” they added. “This led to more domestic demand for key construction commodities.”
The details from import-product categories indicate that this recovery is not being driven by a recovery of household demand
Lynn Song, ING
But Lynn Song, chief economist for Greater China at ING, said it was “fairly clear” that the electric vehicle sector continued to drive import demand, with copper and car parts seeing positive growth.
China’s technological self-sufficiency and manufacturing upgrade also drove strong demand for hi-tech imports, semiconductors and automatic-data-processing equipment, Song added.
“Overall, the details from import-product categories indicate that this recovery is not being driven by a recovery of household demand, but rather instead reflects the national strategy to drive growth through investing in hi-tech fields and innovation,” Song said.
China’s July trade surplus stood at US$84.65 billion, down from a record US$99.05 billion in June.
“China’s trade recovery appeared to lose some steam in July as exports missed expectations, while imports saw a sharper recovery, leading to a lower trade surplus of US$84.65 billion compared with the record surplus in June,” said analysts at HSBC.
In terms of trade partners, China’s exports to the Association of Southeast Asian Nations (Asean) rose by 12.15 per cent in July compared with a year earlier.
Vietnam, Malaysia and Indonesia accounted for the bulk of the export strength, according to Song at ING.
Shipments to the US, meanwhile, increased by 8 per cent, representing a third straight month of positive growth.
But exports to Russia decreased in July by 2.81 per cent, year on year, while shipments to the European Union rose by 7.9 per cent.
Analysts at HSBC said exports to emerging markets, including the Asean bloc, continued to be “likely driven in part by some supply-chain shifts”, with shipments to Latin America up by 13.8 per cent compared with a year earlier.
“Exports to developed markets remained weak but saw some marginal improvements over the past month as well, with a smaller contraction of exports to the EU and South Korea, and a slight acceleration of exports to the US,” Song at ING added.
Analysts offered mixed outlooks for China’s trade environment, with HSBC saying an “unevenness” in trade recovery would likely continue.
“While trade has been a welcome tailwind for growth so far this year, we see uncertainty in its ability to continue to drive forward activity,” they said.
“Instead, policymakers are turning more towards domestic demand, with a notable turn towards boosting consumption demand, particularly in services, to help shore up growth this year.”
Capital Economics expects that import volumes will further rise in the coming months.
We expect exports to stay robust in the coming months
Zichun Huang, Capital Economics
Leadership appears more worried about the near-term outlook, compared with a few months ago, and has signalled a step-up in fiscal spending,” Huang added.
“This is likely to boost construction activity, driving up demand for industrial commodities.”
Capital Economics also expects exports to remain strong with the yuan exchange rate “moving in exporters’ favour”.
“We expect exports to stay robust in the coming months. Although the yuan has recently appreciated against the US dollar due to a sharp drop in US-interest-rate expectations, this is unlikely to have a negative impact,” Huang said.
He said the yuan has weakened by 0.8 per cent on a trade-weighted basis over the past week, which should provide further support to exports.
