China's exports exceed forecasts, declining imports point to more stimulus

China's exports grew at their fastest in fifteen months in June, suggesting manufacturers are front-loading orders ahead of tariffs expected from a growing number of trade partners, while imports unexpectedly shrank amid weak domestic demand.
 

The mixed trade data keeps alive calls for further government stimulus as the $18.6 trillion economy struggles to get back on its feet. Analysts warn that the jury is still out on whether strong export sales in recent months can be sustained given major trade partners are becoming more protective.
 

"This reflects the economic condition in China, with weak domestic demand and strong production capacity relying on exports," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
 

 

"The sustainability of strong exports is a major risk for China's economy in the second half of the year. The economy in the US is weakening. Trade conflicts are getting worse." Outbound shipments from the world's second-biggest economy grew 8.6 per cent year-on-year in value in June, customs data showed on Friday, beating a forecast 8.0 per cent increase in a Reuters poll of economists and a 7.6 per cent rise in May.
 

But imports hit a four-month low, shrinking 2.3 per cent compared with a forecast 2.8 per cent increase and a 1.8 per cent rise the previous month, highlighting the fragility of domestic consumption.
 

Stronger-than-expected exports have been one of the few bright spots for an economy otherwise struggling for momentum despite official efforts to stimulate domestic demand following the pandemic. A prolonged property slump and worries about jobs and wages are weighing heavily on consumer confidence.
 

Still, as the number of countries stepping up curbs on Chinese goods increases, so too does the pressure on its exports to prop up progress towards the government's economic growth target for this year of around 5 per cent.
 

China's trade surplus stood at $99.05 billion in June, the highest on record, compared with a forecast of $85 billion and $82.62 billion in May. The United States has repeatedly highlighted the surplus as evidence of one-sided trade favouring the Chinese economy.
 

Washington in May hiked tariffs on an array of Chinese imports, including quadrupling duties on Chinese electric vehicles to 100 per cent. Brussels last week confirmed it would impose tariffs on EVs as well, but only up to 37.6 per cent.
 

Chinese exporters are also on edge heading into US
 

elections in November in case either major party tips fresh trade restrictions.
 

Turkey last month announced it would impose a 40 per cent additional tariff on Chinese-made EVs, and Canada said it was considering curbs.
 

Meanwhile, Indonesia plans to impose import duties of up to 200 per cent on textile products, which come mainly from China; India is monitoring cheap Chinese steel; and talks with Saudi Arabia over a free trade agreement have reportedly stalled over dumping concerns.
 

Analysts expect China to roll out more policy support measures in the short term, and a government pledge to boost fiscal stimulus is seen helping kick domestic consumption into a higher gear.
 

"It appears that the stronger government bond issuance since May has not yet fed through to increased infrastructure spending and demand for commodities," said Zichun Huang, a China economist at Capital Economics.
 

"But we expect this to occur soon, boosting the import-intensive construction sector," she said.
 

Economists and investors are awaiting for the Third Plenum to be held on July 15-18, with hundreds of China's top Communist Party officials gathering in Beijing for a meeting that comes every five years.

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