China’s June exports hit the fastest pace in 15 months, while imports unexpectedly fell, falling far short of economists’ predictions. This indicates that domestic demand in China remains weak, with manufacturers highly reliant on exports, which could prompt countries to increase trade protection policies.
According to data released by the Chinese Communist Party’s National Bureau of Statistics on Friday (July 12), China’s exports in June increased by 8.6% year-on-year in US dollars, accelerating from 7.6% in May, marking the highest growth rate since March 2023 and surpassing the expected 8% forecast by Reuters experts.
However, June imports hit a new low in four months, dropping by 2.3% year-on-year, much lower than the economists’ predicted growth rate of 2.8% and the 1.8% growth rate in May, highlighting the fragility of domestic consumption.
The data suggests that amid a long-term sluggish real estate market, widespread concerns about job prospects, and collapsing consumer confidence, Beijing is increasingly relying on exports and manufacturing to drive economic growth.
With the decline in imports, China’s trade surplus in June rose to a record high of $99.05 billion. China had a trade surplus of $31.78 billion with the United States, nearly $23 billion with the European Union, and $17 billion with the Association of Southeast Asian Nations (ASEAN).
The United States has repeatedly emphasized that the trade surplus is evidence of one-sided trade benefiting China. The growing trade imbalance could intensify trade tensions and exacerbate concerns about China’s overcapacity.
Analysts suggest that the recent growth in China’s exports in the past few months may be due to manufacturers shipping goods early. The US is set to raise tariffs on China in August, prompting manufacturers to rush shipments before the new tariffs take effect.
Attacks by Houthi rebels disrupting the Red Sea shipping route have also prompted some Chinese enterprises to expedite shipments to ensure timely delivery before the Christmas holiday.
However, strong exports and weak imports indicate an imbalanced economic recovery in China. In June, China’s Consumer Price Index (CPI) rose by only 0.2% year-on-year, while the Producer Price Index (PPI) has been in deflation territory for 21 consecutive months.
Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, stated that the June data “reflects China’s economic situation, with weak domestic demand and strong production capacity relying on exports.”
“The sustainability of strong exports poses a significant risk to 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, noted, “China’s June exports exceeded expectations for the second consecutive month… Strong external demand and favorable base effects may continue to support export data in the third quarter of 2024.”
Zhu added, “Nevertheless, this alone cannot lay a solid foundation for the (Chinese) economic recovery. The unexpected drop in imports in June indicates that domestic demand remains weak. Faster and more aggressive stimulus measures are needed to achieve the official 5% growth target.”
More and more countries are imposing restrictions on Chinese goods, escalating pressure on China’s exports rapidly.
In May this year, the US imposed tariffs on a range of Chinese goods, including quadrupling tariffs on Chinese electric vehicles to 100%. Last week, the EU confirmed it would impose a maximum anti-subsidy tariff of 37.6% on Chinese electric cars.
Last month, Turkey announced a 40% additional tariff on Chinese-made electric cars, while Canada is also considering similar restrictive measures.
Meanwhile, Indonesia plans to levy import tariffs of up to 200% on textile products mainly from China.
India is monitoring China’s low-cost steel exports. Reports suggest that negotiations on a free trade agreement between China and Saudi Arabia are stalled due to dumping issues.
To prevent a flood of low-end Chinese chips into the European market, the EU has begun soliciting the semiconductor industry’s views on China’s expansion of traditional chip production processes, planning to formulate preemptive measures.
This Wednesday, the US and Mexico announced new measures to jointly curb China’s redirection of steel and aluminum exports through Mexico to the US, further excluding Chinese-produced cheap metals from the US market.
Reuters analysis suggests that poor import data may foreshadow export challenges in the coming months, as nearly a third of China’s imports are components processed for re-export.
In the first half of this year, China’s steel exports grew by 24% year-on-year, further highlighting weak domestic demand, indicating that the revival of the construction industry as a major consumer of metals remains distant.
(This article references relevant reports from Reuters, Bloomberg, and the Financial Times)