China currency fix calms markets
China’s export growth rebounded in July and imports shrank less than forecast, signaling some recovery in trade just as companies brace for the arrival of new tariffs from the U.S.
Exports increased 3.3 per cent in July from a year earlier, while imports declined 5.6%, leaving a trade surplus of $45.1 billion, the customs administration said Thursday. Economists had expected exports to drop by one per cent and imports to shrink by nine per cent. China’s exports to the U.S. dropped 6.5 per cent in July from a year earlier in dollar terms and its trade surplus with the U.S. for the first seven months was US$27.97 billion, down from US$29.92 billion in the first half.
Stabilizing exports are a brighter sign for China’s slowing economy after a bruising first half, and follow indications that policy makers are willing to tolerate a weaker yuan that may help boost the nation’s external competitiveness. President Donald Trump announced last week that the U.S. will impose 10% additional tariffs on another US$300 billion worth of Chinese exports starting next month, after the two sides ended their first face-to-face talks in three months without progress. Beijing said it will retaliate.
“The strength in exports reflected a broad-based improvement,” said Michelle Lam, Greater China economist at Societe Generale SA in Hong Kong. “But given Trump’s latest threat, we may see some front-loaded orders again in August before more weakness in the rest of the year.”
If Trump imposes the additional tariffs as scheduled Sept. 1, China’s economic growth will slow to six per cent this year and 5.6 per cent in 2020, according to estimates by Bloomberg Economics. China’s yuan slid past the key level of 7 to the dollar this week, weakening to its lowest level against a basket of peers since 2015 on Thursday.
Economists interpreted the data differently. Despite export and imports beating expectations in July, the trade outlook remains bleak in the second half as purchasing managers indexes of major trading partners remain low, indicating sluggish external demand, said Ding Shuang, chief China and North Asia economist at Standard Chartered Bank Ltd. in Hong Kong.
“The last round of U.S. tariff increases in June -- from 10 per cent to 25 per cent on $200 billion of China’s goods -- will likely show its effect in the next few months,” he said. “Compared with the first half, net exports may turn from a boost to a drag on the economy.”
China’s escalating trade war with the U.S. may be nudging the world economy toward its first recession in a decade, with investors demanding politicians and central bankers act fast to change course.
The latest setback hit German industrial production, which in June registered its biggest annual decline in almost a decade, highlighting the severity of a manufacturing slump in Europe’s largest economy. In the Asia-Pacific region, central banks in New Zealand, India and Thailand made surprise interest-rate cuts Wednesday trying to safeguard their economies from global headwinds.
What Bloomberg’s Economists Say
The upbeat data cannot obscure the gloomy external outlook. The impact of the escalating trade war between the two biggest economies will reverberate across the world at a time when major economies are showing further signs of weakness.
--Chang Shu and Qian Wan
Betty Wang, senior China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said so far there is no strong evidence that manufacturers are receiving fewer orders. The downside to exports may be limited for the rest of this year even considering the 10 per cent tariffs, though the impact may be seen on manufacturing investment, she said.
Commodities imports were stronger across the board. Soy was among the standouts, with inbound shipments climbing to the highest in almost year after China boosted buying of South American supplies and before halting purchases from the U.S. Imports of coal, crude oil, iron ore and copper concentrates also rose year-on-year.
Wang said the a mix of rising prices and volumes drove strong commodity imports.
“Coal and crude oil volumes also held up, which could be seen as signs of rising energy demand,” she said, adding that higher iron ore prices compared to last year also boosted the value of imports.
“Exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi should be overshadowed by further U.S. tariffs and broader external weakness, said Julian Evans-Pritchard, a senior China economist at Capital Economics in Singapore.