China’s exports grew less than expected in July, but better-than-expected import growth last month pointed towards signs of recovery in domestic demand, driven by the electric vehicle sector. Exports, which have been a major growth engine in the first half of the year, grew by 7% in July from a year earlier to USD300.56 billion, falling short of data provider Wind's expected growth of 9.5% and the 8.6% 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 export sentiment.” U.S. tariffs on over 100 Chinese goods 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, which could further affect global consumer confidence. The yuan also surged last 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%. “This means that the weakening global demand and tariffs may affect China’s exports more down the road. If the U.S. dollar weakens and U.S. 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 for China 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% from a year earlier, compared to the 2.3% decrease reported in June and the 12.4% 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. “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 to USD84.65 billion in July, down from the record USD99.05 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 (ASEAN) rose by 12.15% in July compared to a year earlier, but exports to Russia decreased by 2.81%. Shipments to the United States increased by 8%, representing a third straight month of positive growth, while shipments to the European Union rose by 7.9%. “This shows not only a continued uptick in global demand, but also a front-loading of export orders, especially to the U.S.,” said Ding. He added that the U.S. 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%, while imports from Hong Kong rose by 40.67% year-on-year in July.
In terms of products, China’s car shipments by volume surged by 26.26% year-on-year in July, while they increased by 13.81% by value. Ship exports rose by 21.93% by volume, and by 54.8% by value, while shipments of integrated circuits rose by 51.39% year-on- year by volume, and by 27.67% by value. Imports of integrated circuits, meanwhile, rose by 14.93% by value and by 16.25% 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 U.S. semiconductor-making equipment had also led to increased exports of components, including semiconductor chips, to China, the South China Morning Post reports.
The China Daily analyzed China's foreign trade figures in yuan terms over the first seven months of the year, asserting that China’s export sector saw a better-than-expected performance in the first seven months of the year as overseas demand remained on a steady growth trajectory, fueled by the strong competitiveness of Chinese products across various sectors, despite fresh trade restrictions and escalating geopolitical tensions. Moreover, the improved domestic appetite and strengthened business sentiment in the world’s second-largest economy, thanks to a package of policy measures over the past months, have propped up the steady growth of its imports, analysts said. The China Daily also mentioned that in July, foreign trade in goods soared 6.5% year-on-year in yuan terms, with exports gaining 6.5% and imports expanding by 6.6%. The year-on-year growth rate of imports and exports has been higher than 5% for four consecutive months, according to the General Administration of Customs (GAC).
The goods trade volume expanded 6.2% year-on-year to CNY24.83 trillion in the January-July period, data released by the GAC showed. Exports rose 6.7%, while imports climbed 5.4%. China’s import and export volume in the first seven months achieved a historic high for the same period. Looking ahead, the export performance is expected to continue its solid growth trajectory, though analysts anticipate a potential moderation in the expansion rate as the base effect from the previous year comes into play starting in August.
Zhong Zhengsheng, Chief Economist at Ping An Securities, said the sustained strength of external demand has provided a solid foundation for China’s thriving export performance during this period, as developed economies continue their rebound and developing nations expand their markets. In the first seven months of the year, China’s total imports and exports with the European Union, the United States, South Korea and Japan amounted to CNY8.49 trillion, up 2.2% year-on-year. Concurrently, the country’s trade with the Association of Southeast Asian Nations, Central Asia, Latin America and Africa collectively reached CNY7.6 trillion, a year-on-year growth of 9.8% during the same period. Wang Qing, Chief Economist at Golden Credit Rating, said stronger steps should be taken to facilitate the development of crossborder e-commerce and overseas warehouses and provide enterprises with new avenues to penetrate overseas markets and reach global consumers.
Focussing on the China-EU bilateral trade, the Global Times reports that it reversed its decline to rise by 0.4% in the first seven months. The EU remained China's second-largest trade partner in the period. Total bilateral trade reached CNY3.22 trillion in the first seven months, while in the first half, it declined by 0.7% year-on-year. “China and the EU still posted slight growth in bilateral trade despite a sluggish international trade environment. It indicates that there are many complementarities in China-EU trade,” Sun Yanhong, Senior Research Fellow at the Institute of European Studies of the Chinese Academy of Social Sciences, said. There is vast room for cooperation in fields including the digital and green economies, and areas where the EU and China are strongly complementary, Sun noted, despite the EU adopting protectionist measures targeting Chinese companies. Recently, the bloc introduced provisional additional tariffs of up to 37.6% on Chinese electric vehicles (EVs).
On August 9, the National Bureau of Statistics (NBS) also published a better-than-expected consumer price index (CPI) which signaled a strengthening of consumer confidence and demand as prices rose compared to the previous month. From a month-on-month perspective, the CPI has reversed its decline of 0.2% in June to register an increase of 0.5%, while the CPI grew 0.5% on a year-on-year basis. Looking into the second half of the year, the burgeoning travels in the summer time, accompanied by the typical consumption boom in the fourth quarter, the country’s CPI is likely to sustain a “mild recovery”, the People’s Bank of China (PBOC) said in a report. “The surprising rise in the CPI was mainly led by strong food price inflation, which was largely driven by adverse weather in parts of the country, including high temperatures and flooding,” said analysts at Nomura. They also expected inflation to rise further in August to 0.6%, year-on-year, due to extreme weather. China’s producer price index (PPI) slipped by 0.8% last month, falling for the 22nd consecutive month.
