Agencies
China’s exports grew less than expected in July, with analysts holding mixed views towards the outlook for the second half of the year amid uncertainties surrounding overseas demand and global consumer sentiment, coupled with heightened geopolitical tensions.
However, analysts also said the silver lining of better-than-expected import growth last month pointed towards an initial sign of recovery in domestic demand, driven by demand from the electric vehicle sector.
Exports, which have been a major growth engine in the first half of the year, grew by 7 per cent in July from a year earlier to US$300.56 billion, according to customs data released on Wednesday.But the reading, which was partly helped out by front-loading ahead of the implementation of tariffs from the United States and European Union, fell short of the expected growth of 9.5 per cent surveyed by Chinese financial data provider Wind, and was lower than the 8.6 per cent increase in June.
"There have been several headwinds likely contributing to the softer-than-expected reading,” said HSBC economists Erin Xin and Taylor Wang.
"A decline in the manufacturing purchasing managers’ indices in developed markets reflected weaker final demand. Meanwhile, the implementation of some additional tariffs by trading partners may have also affected exporting sentiment.”US tariffs on over 100 Chinese goods, initially set to start last week, have been delayed by at least two weeks, while the European Union’s final decision on tariffs on Chinese electric vehicles will be announced later this year.China’s key exports could also come under pressure from global macro events after concerns about a recession in the United States triggered a massive global stock market sell-off at the start of this week, which could further affect global consumer confidence.
The yuan also surged this week, adding a further challenge for exporters, should the appreciation continue.
"China’s external trade continued to rebound in July, but the situation is more challenging than it looks considering the base effect,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank, with the headline growth last month partially attributed to the low baseline from the same period last year, when China’s exports plummeted to their lowest level since February 2020 after falling by 14.5 per cent.
"This means that the weakening global demand and tariffs may affect China’s exports more down the road. If the US dollar weakens and US economic growth decelerates, it is possible to see exports, China’s most impressive growth driver in 2024, slow down in the next few months.
"It shows the urgency of why China needs to switch to demand-side policies and rely on domestic demand to achieve its growth target.”Imports, meanwhile, considerably beat expectations and rose by 7.2 per cent from a year earlier, compared to the 2.3 per cent decrease reported in June and the 12.4 per cent year on year decline in the same month last year.
"This could be an initial sign of improving domestic demand in China, but we will need to watch the import data for the next few months again to come to this conclusion,” said Ding Shuang, chief economist for Greater China at Standard Chartered, who also attributed the increase to base effects.
Lynn Song, chief economist for Greater China at ING, said it was "fairly clear” that the electric vehicle sector had continued to drive import demand with copper and car parts seeing positive growth.
He also pointed to China’s technological self-sufficiency and manufacturing upgrade drive, which has driven strong demand for hi-tech imports, semiconductors and automatic data processing equipment.
"Imports will pick up further in the coming months as a step-up in fiscal support should boost import-intensive construction activities,” said Zichun Huang, China economist at Capital Economics.
The rise in exports brought China’s trade surplus – as it sells more than it buys from other countries – to US$84.65 billion in July, down from the record US$99.05 billion in June.
"China’s trade surplus will shrink if domestic demand continues to rise, but this trend should be viewed positively, as boosting domestic demand is a top priority,” Ding added.
In terms of trade partners, China’s exports to the Association of Southeast Asian Nations rose by 12.15 per cent in July compared to a year earlier, but exports to Russia decreased by 2.81 per cent.Shipments to the United States increased by 8 per cent, representing a third straight month of positive growth, while shipments to the European Union rose by 7.9 per cent.
"This shows not only a continued uptick in global demand, but also a front-loading of export orders, especially to the US,” said Ding.
He added that the US economy is likely to see a soft landing, while demand for Chinese imports is likely to remain strong next year with potential trade frictions providing the biggest barrier.
Exports to Hong Kong, meanwhile, grew by 12.65 per cent, while imports from Hong Kong rose by 40.67 per cent year on year in July."Trade between China and Hong Kong mostly represents re-exports and imports, the actual local demand and production from Hong Kong is pretty minimal,” added Song at ING.
"It’s likely this is due to imports of semiconductors and other hi-tech goods stopping in Hong Kong first before being sent into China.” In terms of products, China’s car shipments by volume surged by 26.26 per cent year on year in July, while they increased by 13.81 per cent by value.
Ship exports rose by 21.93 per cent by volume, and by 54.8 per cent by value, while shipments of integrated circuits rose by 51.39 per cent year on year by volume, and by 27.67 per cent by value.
Imports of integrated circuits, meanwhile, rose by 14.93 per cent by value and by 16.25 per cent by volume.
"Some front-loading may be due to uncertainty around a possible ramp-up in trade restrictions,” said Xin and Wang at HSBC.
They added that a possible new export blockade of US semiconductor-making equipment had also led to increased exports of components, including semiconductor chips, to China.