Positive factors despite slowing foreign trade

China’s foreign trade rose more slowly than expected in July partly due to weather conditions. Currency appreciation and a higher base also had an effect. However, economists said the outlook remained robust.

Exports in yuan-denominated terms rose 11.2 percent year on year to 1.32 trillion yuan (US$197 billion) in July, slower than June’s 17.3 percent increase, data with the General Administration of Customs showed yesterday.

Imports rose 14.7 percent to 1 trillion yuan, slower than June’s 23.1 percent growth.

The monthly trade surplus stood at 321.2 billion yuan in July, up 1.4 percent year on year.

For the first seven months of 2017, exports increased 14.4 percent year on year while imports rose 24 percent.

In US dollar terms, imports rose 11 percent and exports rose 7.2 percent, slower than the market expectations of 18 percent and 11 percent.

The slower growth was a result of a stronger yuan in recent weeks and a higher base in the second half of last year, said Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation.

The yuan has been on an upward trajectory this year due to a weakening US dollar and the Chinese economy’s steady expansion.

Bai expects the pressure for appreciation to persist in the second half of the year, while predicting overall stable growth in foreign trade.

Australia and New Zealand Banking Group said the slower trade growth in July was likely due to the hot weather and flooding in some areas, while the imports figures revealed a potential slowdown in demand for iron ore.

The trade data did contain positive factors, ANZ said, as the value of exports edged down only marginally and the export outlook remains positive.

Bloomberg chief Asia economist Tom Orlik said it was important to see the data movement in coming months before concluding that a deceleration had set in.

“Trade data are volatile, and a miss in a single month doesn’t necessarily signal a change in the trend,” he wrote in an analysis.

Orlik listed stronger consumption in the United States and Europe and a weaker yuan than a year earlier as positive factors for China’s export outlook, while cautioning that its share of global exports had already topped out and would be difficult to expand further.

Morgan Stanley said in a note said that while exports and imports growth missed expectations, the bank expected export growth to reach its forecast of 9 percent this year due to strong external demand.

“The stronger exports should boost domestic private manufacturing capital expenditure, cushion the impact of a declining credit impulse, and support a structurally higher industrial revenue growth,” the note said.

China’s broad economy remains resilient, as indicated by other data including that on expanding manufacturing activity, said JZ Securities analyst Deng Haiqing.

Deng described the combined trade growth in the first seven months as relatively high. “The economic momentum remains sufficient,” he said.

With milder trade growth but still sound economic fundamentals, Deng said China was likely to keep its monetary policy “not too tight or too loose.”

China set its monetary policy as prudent and neutral for 2017 as authorities try to balance financial deleveraging and support economic growth.

In the first seven months, trade with the EU, China’s biggest trade partner, climbed 17.1 percent from a year earlier to 2.33 trillion yuan.

Meanwhile, trade with the US, ASEAN countries and Japan went up by 20.6 percent, 20.9 percent and 16.9 percent respectively.

Exports of machinery, electronics and labor-intensive products continued to expand in the first seven months, while the volume of steel exports dropped 28.7 percent year on year to 47.95 million tons.  

An indicator of the outlook for China’s exports increased from 41.5 to 41.9 month on month in July, signaling sound momentum.

Huang Songping, a customs spokesman, said last month that foreign trade may face tough conditions in the second half due to a higher comparison basis, stronger international competition and uncertain global outlook in monetary policies, protectionism and commodity prices.