Source – asiafinancial.com
Strong Export Growth Amidst Trade Tensions
China’s exports surged at their fastest pace in fifteen months this June, growing 8.6% year-on-year, according to customs data. This beat the expected 8.0% increase and the 7.6% rise in May. Analysts believe manufacturers are rushing to fulfill orders ahead of anticipated tariffs from a growing number of trade partners. However, imports shrank unexpectedly by 2.3%, reflecting weak domestic demand and adding pressure for further government stimulus in an $18.6 trillion economy striving for recovery.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, highlighted the precarious balance of China’s economy, noting, “The sustainability of strong exports is a major risk for China’s economy in the second half of the year. The economy in the U.S. is weakening. Trade conflicts are getting worse.” This export growth has been a rare bright spot in an otherwise struggling economy, facing challenges from a prolonged property slump and low consumer confidence.
Trade Surplus and Protectionist Measures
China’s trade surplus hit a record $99.05 billion in June, surpassing the forecast of $85 billion and May’s $82.62 billion. This has drawn criticism from the United States, which views the surplus as evidence of imbalanced trade favoring China. The U.S. has responded by increasing tariffs on Chinese imports, including a substantial 100% duty on electric vehicles. The European Union followed suit with tariffs up to 37.6% on Chinese EVs. Other countries, such as Turkey and Canada, are also considering or implementing trade restrictions on Chinese goods.
China’s exporters remain cautious as the U.S. elections in November could bring further trade restrictions. Indonesia and India are also scrutinizing Chinese imports, with Indonesia planning hefty tariffs on textiles and India monitoring steel imports. These protectionist measures could impact China’s export-dependent growth strategy, especially in electronics and other key sectors.
Weak Domestic Demand and Economic Outlook
The decline in imports points to sluggish domestic consumption, with under a third of imports being parts for re-export, particularly in the electronics sector. China’s investment in older chip production has skewed supply and demand, while the European Commission is assessing the impact of China’s legacy chip production on the semiconductor industry.
China’s construction sector, a significant user of steel, is also faltering, as evidenced by a 24% year-on-year jump in steel exports in the first half of the year. This has contributed to a negative sentiment in Chinese stock markets, tracking broader regional declines.
Analysts anticipate further policy measures to boost domestic consumption and support the economy. Zichun Huang, a China economist at Capital Economics, remarked, “It appears that the stronger government bond issuance since May has not yet fed through to increased infrastructure spending and demand for commodities. But we expect this to occur soon, boosting the import-intensive construction sector.”
Awaiting Government Response
Economists and investors are keenly awaiting the outcomes of the Third Plenum, scheduled for July 15-18. This meeting of top Communist Party officials in Beijing, held every five years, is expected to outline significant economic policies and stimulus measures aimed at revitalizing China’s domestic demand and sustaining its export growth amidst global trade tensions.
