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China’s trade data for July, due to be released on Saturday, will be closely watched for indications that export growth has started to slow. Photo: AP

China’s export growth for July may surprise, but most analysts say it will not match June’s surge

  • China’s trade data for last month will be released on Saturday, and a downward trend in export growth is widely expected for rest of year
  • General view is that imports growth has also slowed, notably due to weaker demand for iron ore used in steelmaking
China trade

China’s exports growth for July likely tumbled after a strong June, though analysts say the results may still surprise as a spate of overseas Delta variant outbreaks continue to drive foreign demand for Chinese goods and hold back a recovery in global manufacturing.

The July data – due to be released on Saturday – will be closely watched for signs that export growth has started to slow, which would be seen as a further indicator of the nation’s expected overall economic slowdown in the second half.

While exports have most likely remained strong, helping to cushion the slowdown, their growth rate is widely expected to gradually fall as positive comparison-base effects evaporate in the coming months, and as developed economies continue their economic recoveries.

Ahead of the release of July’s trade data, economists and analysts tipped year-on-year Chinese export growth to have fallen to between 14 and 24 per cent from a 32.2 per cent growth last month. The median forecast in a Bloomberg survey called for a 19.9 per cent increase in July.

Forecasts of import growth in July were more mixed, with some analysts saying it might have risen a little higher than the 36.7 per cent year-on-year growth in June, though the general view was that imports growth also slowed, notably due to weaker demand for iron ore used in steelmaking.

The forecast for slower imports of iron ore lines up with the Chinese authorities’ planned slowdown of steel in the second half of the year, as well as with lower demand from industries such as real estate, which is cooling alongside the rest of the economy, and upcoming winter shutdowns of steel mills.

While the growth rates in exports and imports may have dipped last month, they still ran high against a relatively low base in July 2020, when exports grew by 7.2 per cent and imports fell by 1.4 per cent.

But there remains room for surprising strong exports. In June, analysts had expected export growth to ease to 23 per cent from May’s gain of 27.9 per cent, only to have outbound shipment growth continue to rise.

China’s export container freight index has continued to rise, which also shows that overseas demand for Chinese products is still strong
Zhong Zhengsheng, Ping An Securities

“Looking at the better data of foreign trade container throughput of eight hub ports in July than June, the resurgence in overseas outbreaks may have increased the import demand for Chinese goods,” Zhong Zhengsheng, chief economist at Ping An Securities, said in a note this week.

“China’s export container freight index has continued to rise, which also shows that overseas demand for Chinese products is still strong.”

Still, Zhong forecast that export growth slowed to 23 per cent in July, while import growth may have declined to 33 per cent.

Zhang Yu, chief macro analyst at Huachuang Securities, also expects exports had a “robust” July as demand remained high for Chinese goods from countries still under lockdown and from those wishing to restart their economies.

“Despite the influence of the Delta variant, the US, Europe and other countries have not suspended the restart [of their economies]; high-frequency data shows the travel index of various countries is still rising, thus supporting the continuous increase in demand for related labour-intensive products such as clothing and footwear,” Zhang said.

The United States’ politically sensitive goods deficit with China rose to US$27.8 billion in June, up 5.8 per cent from the May level, according to US Commerce Department figures released on Thursday. So far this year, the goods deficit with China, the largest that the United States runs with any country, totals US$158.5 billion, an increase of 19.2 per cent compared with the same period in 2020.

Data from the China Ports and Harbours Association also indicates that foreign importers have begun to restock inventory for the school season and year-end holidays, boosting Chinese exports of products such as daily necessities and decorations, Zhang added.

Nevertheless, Zhang expects that the export growth rate fell by more than half to 14 per cent in July, while import growth likely eased to 26 per cent.

In their July growth rate forecasts – 18.4 per cent for exports and 27.5 per cent for imports – analysts at China International Capital Corporation (CICC) warned that there could be some future downside to export growth due to typhoons affecting key ports in Jiangsu and Zhejiang.

Last month’s lower manufacturing purchasing managers’ index (PMI) results also support projections for a potential slowdown after July.

China’s manufacturing PMI slipped to 50.4 in July from 50.9 in June – the weakest level of industrial activity since February 2020. The export orders subindex fell to 47.7 from 48.1, indicating a more rapid weakening of foreign demand. The Caixin/Markit manufacturing PMI, which surveys mostly smaller private-sector firms, fell to 50.3 in July from 51.3 in June – the weakest level in 15 months – with the new export order subindex remaining stable just above 50, indicating continued slow growth.

HSBC economists expect China’s trade surplus to shrink slightly, even though imports, including those of iron ore, will drop.

“Since the end of June, a series of major steel-production cities – including in Hebei, Shandong and Hubei provinces, to name a few – have released official documents on production limitations and reductions,” HSBC said in a note.

“Such curbs are likely to keep steel prices from falling, but considering the still-elevated inventory and softer demand from property construction, we expect sequential growth to gradually slow.”

Nevertheless, the bank expects overall trade to remain robust compared with other sectors of the economy, which should help prevent a significant slowdown in economic growth.

That said, economists and analysts remained concerned over an impending slowdown in the Chinese economy, now further exacerbated by the new coronavirus outbreak that started in Nanjing last month.
This week, Nomura Holdings lowered its projection for China’s third-quarter economic growth and cut its full-year GDP growth forecast for the Chinese economy to 8.2 per cent from 8.9 per cent.

Goldman Sachs also said third-quarter GDP could suffer a drop of 0.7 percentage points, citing uncertainties over the duration of the outbreak, while growth forecasts from Bloomberg Economics and NatWest Group also pointed to downside risks.

Additional reporting by the Associated Press