China’s exports in June saw the fastest growth in 15 months, while unexpectedly, imports declined, falling far short of economists’ predictions. This indicates that domestic demand in China remains weak, with manufacturers heavily reliant on exports, which could prompt countries to increase trade protection policies.
According to data released by the Chinese National Bureau of Statistics on Friday (July 12th), China’s exports in June grew by 8.6% year-on-year in US dollars, accelerating from the 7.6% growth in May. This marked the highest growth rate since March 2023 and exceeded the 8% forecast by Reuters experts.
However, imports in June hit a new low in four months, dropping by 2.3% year-on-year, well below the 2.8% growth rate predicted by economists, as well as the 1.8% growth rate in May, highlighting the fragility of domestic consumption.
The data suggests that as the property market remains sluggish and people are generally concerned about job prospects and consumer confidence collapse, Beijing is increasingly relying on exports and manufacturing to drive economic growth.
With the decline in imports, China’s trade surplus for June rose to a record high of $99.05 billion. China’s trade surplus with the United States reached $31.78 billion, nearly $23 billion with the European Union, and $17 billion with ASEAN.
The United States has repeatedly emphasized that the surplus is evidence of trade advantageous to China. The widening trade imbalance could escalate trade tensions and heighten concerns among countries about China’s overcapacity.
Analysts suggest that the recent growth in China’s exports may be due to manufacturers shipping goods early. The US is set to raise tariffs on China in August, and they hope to ship goods before the new tariffs take effect.
The attack by the Houthi armed forces leading to the interruption of the Red Sea route also spurred some Chinese companies to ship goods earlier to ensure timely delivery before the Christmas holiday.
However, the strong export performance and weak import levels indicate an unbalanced economic recovery in China. In June, China’s Consumer Price Index (CPI) growth slowed to a mere 0.2% year-on-year, while the Producer Price Index (PPI) has remained in deflation for 21 consecutive months.
Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, pointed out that the data from June “reflects China’s economic situation, with weak domestic demand and a strong production capacity relying on exports”.
“The sustainability of strong exports is a major risk for China’s economy in the second half of the year. The US economy is weakening. Trade conflicts are escalating,” he said.
Eric Zhu, an economist at Bloomberg Economics, remarked that “China’s exports in June were stronger than expected for the second consecutive month… robust external demand and favorable base effects may continue to support export data in the third quarter of 2024.”
“However, this alone cannot lay a solid foundation for the (Chinese) economic recovery. The unexpected decline in imports in June indicates that domestic demand remains weak. To achieve the official 5% growth target, faster and bolder stimulus measures are needed,” said Zhu.
As more and more countries impose restrictions on Chinese goods, export pressure on China is rapidly increasing.
In May this year, the US imposed tariffs on a range of Chinese goods, including quadrupling tariffs on Chinese electric cars to 100%. Last week, the EU confirmed it would levy anti-subsidy duties of up to 37.6% on Chinese electric cars.
Last month, Turkey also announced it would impose an additional 40% tariff on Chinese-made electric cars, and Canada indicated it was considering similar restrictive measures.
Simultaneously, Indonesia plans to impose import tariffs of up to 200% on textiles mainly from China.
India is monitoring China’s cheap steel. Reports indicate that due to dumping issues, negotiations on the free trade agreement between China and Saudi Arabia have stalled.
To prevent a large influx of low-end Chinese chips into the European market, the EU has started soliciting opinions from the semiconductor industry regarding China’s expansion of traditional chip production processes and is planning to devise countermeasures in advance.
This Wednesday, the United States and Mexico announced new measures to collectively block Chinese steel and aluminum products from bypassing Mexico into the US, further keeping Chinese-produced cheap metals out of the US market.
Reuters analysis suggests that the disappointing import data may also indicate future challenges for exports in the coming months, as nearly one-third of China’s imports are parts prepared for processing and re-export.
In the first half of this year, China’s steel exports grew by 24% year-on-year, further indicating weak domestic demand, underscoring that the revival of the construction industry, a major user of metals, remains distant.
(This article references relevant reports by Reuters, Bloomberg, and the Financial Times.)