Chinese exports will continue to face downside pressures due to the impact of the coronavirus pandemic on the global economy, but the stronger-than-expected trade performance in June provides hope for a further improvement in the second half of the year, analysts said on Tuesday. Chinese exports returned to growth last month, with a rise of 0.5 per cent from a year ago, beating the 2.0 per cent decline expected by the market and improving sharply from the 3.3 per cent slump in May, according to data released by the General Administration of Customs. China’s imports in US dollar terms also rose by 2.7 per cent in June, again much better than expectations for a 9.0 per cent drop and partly reversing the fall of 16.7 per cent in the previous month. But how trade with the European Union develops will be a key variable for Chinese exports in the coming six months, given that the continued rapid spread of the coronavirus pandemic and deteriorating US-China relations are expected to weigh on Chinese exports to America. China-US trade frictions are unlikely to get any better before the US election, but we can still do better in the EU, the potential of the EU market is still there Huo Jianguo “Because we have explored nearly all markets we could, Europe and the US markets are still the largest part,” said Huo Jianguo, the former head of the Chinese Academy of International Trade and Economic Cooperation, a think tank under China’s Ministry of Commerce. “China-US trade frictions are unlikely to get any better before the US election, but we can still do better in the EU, the potential of the EU market is still there.” Huo said the recovery of imports could be stronger than exports given the rebound in domestic economic activities, particularly soaring demand for international commodities to supply the country’s infrastructure building push, and implementing purchases of US products according to phase one trade deal. He added that June’s data showed China was a bright spot in global trade, predicting that the country’s trade performance would be better in the second half of the year than in the first six months. But Huo warned that the third quarter would still be difficult, given that the foreign demand for Chinese products was unlikely to pick up due to the recent surge in overseas Covid-19 outbreaks. “We should continue to pay great attention to the difficult situation facing exports and enhance support for exports. Many things are beyond the control of Chinese [export] companies because they depend on foreign demand and orders,” he added. Huo’s comments were echoed by Lu Ting, chief China economist at financial services firm Nomura, who said that if the Covid-19 pandemic extended to the end of 2020, or even into next year, China’s export growth would eventually be hit by the resulting further weakness in global demand. But even if global outbreaks are effectively contained in the second half of the year, it might not necessarily be good news for the world’s largest goods exporter. The US election is approaching, [Donald] Trump's approval rating has declined significantly, there is still great uncertainty on China-US issues, all of which continues to weigh on China’s foreign trade Liang Zhonghua “As some countries gradually reopen their economies and start producing personal protective products domestically for security reasons, China’s exports of those products could decline,” Lu said. Personal protective equipment – such as masks, gloves and isolation suits – have one of China’s leading exports in the first half of the year. Liang Zhonghua, chief macro analyst at the research institute of Zhongtai Securities, agreed that China’s foreign trade recovery would have to overcome obstacles in the second half of the year, since the second wave of overseas outbreaks would once again drag down the foreign appetite for Chinese goods. “In addition, the US election is approaching, [Donald] Trump's approval rating has declined significantly, there is still great uncertainty on China-US issues, all of which continues to weigh on China’s foreign trade,” Liang said. The rise in exports in June continued to be buoyed by growth in shipments of masks, medical products and work-from-home equipment. However, the recent rise in exports, fuelled in part by the easing of lockdown conditions in major markets – since reversed in many countries – could fade in coming months, said Martin Rasmusen, China economist at Capital Economics. “Most leading indicators of exports, including the [purchasing managers’ index] export orders indices, suggest that exports will start to contract again before long.” he said in response to the data. Still, the trade data in June was seen as a positive sign for the Chinese economy. Nomura’s Lu revised up his forecast for China’s export in the second half of the year to unchanged from a year earlier from the decline of 9.0 per cent he expected previously, and raised his import growth forecast to minus 1.0 per cent from minus 7.0 per cent. “The worst period for China’s exports might have passed by unobserved,” said Lu Zhengwei, chief economist at the Industrial Bank in Shanghai. The stronger import momentum could last at least until the first half of next year, due to the current round of domestic infrastructure investment boom and the economic growth it leads to, both of which will underpin China’s demand for foreign bulk commodities, Lu said. However, he said it is nearly impossible that the rise of Chinese domestic demand this time would be able to boost the entire global economy as it did a decade ago in response to the global financial crisis, given the more modest extent of Chinese government stimulus efforts.