Insight

Key takeaways from China’s July Trade Data

Key takeaways from China’s July Trade Data

Once again, China’s monthly exports defied gravity and edged up 18.0% y/y (vs cons 14.1% y/y) though imports softened to 2.3% y/y (vs cons 4.0% y/y) leading to a huge USD 101.3bn trade surplus.1

The monthly trade data shows that China’s factories continue to march towards a robust comeback from the latest Omicron wave.

Despite a softening global demand backdrop, the export beat was driven by normalizing production activity in places like the Yangtze River Delta, coupled with higher prices being passed-through.

From a sector perspective, most of the exports growth came from autos (+64.0% y/y) and apparel (+18.5% y/y) while electronics and other technology segments moderated (PC/tablets +2.9% y/y, integrated circuits -4.5% y/y, mobile phone -10.5% y/y).1

From a regional perspective, exports to ASEAN countries accelerated and cushioned the US demand deceleration.

Imports for the month came in softer than expected +2.3% y/y though accelerated from the prior month +1.0% in June due to anemic household demand.1

Outlook

I would not expect domestic consumption to rebound materially and support the economy until the property market finds a bottom and COVID restrictions have been eased, which could happen some time later this year.

While I continue to believe industrial production and exports could be strong over the coming few months driven by the wider APAC region reopening, headwinds for the rest of the year remain.

US and European demand may decelerate further given tightening monetary policies and recession risks and China’s zero-COVID policy is unlikely to materially change for the rest of the year, which presents a risk for the nascent domestic production recovery.

While global growth is likely to moderate in the 2H and select Developed Markets could even dip into recessionary territory, China’s economic growth trajectory couldn’t be more different.

In order to assure a strong 2H, Beijing policymakers are likely to stabilize the property market, push through more fiscal and monetary stimulus measures and try to engineer a transfer of the growth baton from the global consumer to the domestic consumer.  

Reference

  • 1

    Source: National Bureau of Statistics of China, as of Aug 8, 2022.

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