China surprises with best export growth since March, imports fall

The better-than-expected trade readings helped buoy Asian stock markets, which suffered a heavy selloff this week.

    Analysts say China is trying to diversify its export market amid the ongoing trade war with the US [File: Aly Song/Reuters]
    Analysts say China is trying to diversify its export market amid the ongoing trade war with the US [File: Aly Song/Reuters]

    China's exports unexpectedly returned to growth in July on improved global demand despite escalating trade pressures from the United States, but the rebound may be short-lived as Washington prepares to slap even more tariffs on Chinese goods.

    Analysts say a sharp drop in China's yuan currency this week may offer only limited help for Chinese exporters, who are facing additional US levies next month, shrinking profit margins and sputtering demand worldwide.

    July exports rose 3.3 percent from a year earlier, the fastest since March and more than the most optimistic had estimated in a poll by Reuters news agency, customs data showed on Thursday. Analysts had expected a 2 percent drop after a 1.3 percent fall in June.

    Imports, however, remained weak, declining 5.6 percent and highlighting sluggish domestic demand as China's economy struggles to get back on firmer footing. Still, the drop was less than an expected 8.3 percent and June's 7.3 percent.

    The better-than-expected trade readings helped buoy Asian stock markets, which suffered a heavy selloff earlier in the week as the Sino-US trade war intensified and the yuan skidded to 11-year lows.

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    While China's exports to the US continued to shrink in July in the face of stiffer tariffs, shipments picked up to Europe, South Korea, Taiwan and - most noticeably - Southeast Asia.

    "It could suggest that some exporters are trying to diversify their export regions, it could also be due to manufacturers' relocations to ASEAN (from China)," Betty Wang, a senior China economist at ANZ, an Australian multinational banking and financial services company, told Reuters.

    "This hopefully can offset some of the downside risks from the US-China bilateral trade." 

    Washington is clearly watching shifts in China's trade patterns as the trade dispute wears on. The US recently warned Hanoi that some export goods labelled "Made in Vietnam" were of Chinese origin.

    An official Chinese think-tank attributed the rise in exports partly to Beijing's Belt and Road Initiative, a programme that aims to boost business and trade ties with dozens of countries across the world.

    "This year, China did not only increase its market share in major economies such as the European Union, what's more outstanding is the growth rate in emerging markets is very clear, especially the countries who we work with on the Belt and Road," Yan Min, the director of the forecasting department at the State Information Center, was quoted by Chinese state media as saying.

    No quick turnaround in sight

    China's exporters and their US customers have been whipsawed in recent months by trade uncertainties, with the fallout rippling through global suppliers from Germany to Singapore.

    The US raised tariffs on a large number of Chinese goods in May, after trade negotiations broke down, and Beijing retaliated.

    A brief pause agreed in late June has proved short-lived, after US President Donald Trump promised last week to impose a 10 percent tariff on $300bn of Chinese goods from September 1, which would extend levies to effectively all of the goods China sells to the US.

    In response, China said it would stop purchasing US agricultural products. China's trade surplus with the US stood at about $27.97bn in July, narrowing from June's $29.92bn.

    But it reached $168.5bn in the first seven months of 2019, highlighting continued imbalances which have been a core complaint of Trump in his administration's negotiations with Beijing.

    China's July exports to the US fell 6.5 percent year-on-year, while imports from the US to China slumped 19.1 percent.

    Widening dispute

    The dispute between the world's largest economies is spreading beyond tariffs on goods to other areas such as technology and, in recent days, currency policy.

    On Monday, China allowed the yuan to depreciate past the 7 yuan-per-dollar level for the first time in more than a decade, triggering worries of a global currency war. Hours later, Washington branded Beijing a "currency manipulator".

    While China has stepped in to stabilise the yuan in recent sessions, markets remain on edge in case of further weakness.

    "Looking ahead, exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi should be overshadowed by further US tariffs and broader external weakness," Julian Evans-Pritchard, senior China economist at Capital Economics, told Reuters in a note on Thursday.

    Pressed by weak demand at home and abroad, China's economic growth cooled to a near 30-year low of 62 percent in the second quarter. Other major data over the coming week is expected to show a loss of momentum in July, reinforcing views that Beijing will need to roll out more support measures.

    SOURCE: Reuters news agency