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China’s dollar-denominated export growth missed expectations last month, in what analysts said was a signal to policymakers that its heavy reliance on trade to weather domestic economic weakness may face growing risks.
In contrast to exports, imports rose sharply, reversing earlier declines, as industry bought machinery and capital goods to support growing investments.
Exports rose 7 percent year-on-year in dollar terms in July, according to official data released Wednesday by China’s General Administration of Customs, down from an 8.6 percent increase in June. A Reuters poll of analysts had forecast growth of 9.7 percent.
Imports rose 7.2 percent, far exceeding the 3.5 percent growth forecast in a Reuters poll and up from a 2.3 percent annual decline in June.
“[Chinese policymakers] “They will probably look at this and think that the export engine will slow down sooner than they thought,” said Louise Loo, chief economist at Oxford Economics.
China’s economy has relied on trade and industrial production to offset a prolonged housing crisis and worsening local government finances, which have weighed on consumer confidence and household spending.
Investor confidence has also been hit by the government’s crackdown and Beijing’s insistence on providing only incremental stimulus, rather than a big bang, to meet its official 5% economic growth target.
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President Xi Jinping has outlined his vision of boosting productivity through investment in advanced technology, manufacturing and innovation, with state banks lending to industry rather than stimulating domestic demand.
This has led to disinflationary pressures in the economy, with lower prices boosting the competitiveness of China’s exports at a time when developed markets are grappling with higher inflation.
Loo said Chinese industry likely brought forward exports in the early part of the year in anticipation of possible tariffs and uncertainty over the U.S. presidential election, as well as weaker external demand as the U.S. economy weakens.
“The problem is that external demand was never, in our view, a permanent driver, it was going to fade away,” he said. “It’s just a matter of timing the end of that boom.”
Heron Lim, an economist at Moody’s Analytics, said the weaker-than-expected July export data could be partly due to rising trade protectionism targeting Chinese products, including cars.
This has occurred not only in developed markets such as the United States and the European Union, which have increased tariffs on electric vehicles, but also in other products and in developing countries.
“We certainly expect more in terms of stimulus,” he said, underlining expectations for monetary easing and other measures in the second half of the year.
However, Lynn Song, chief China economist at ING, noted that exports increased in volume terms, particularly in sectors such as autos, while prices remained lower.
“I think the disappointing export data is actually more related to price competition,” he said, adding that some areas showed stronger activity, such as consumer electronics and semiconductor exports.
“This is not a large-scale slowdown in external demand,” he said, adding that “the value of exports has collapsed and that is probably slowing down the numbers a little bit.”
Song also stressed that imports are driven by demand for auto parts from electric vehicle industries, as well as China’s efforts to modernize the industry and achieve technological self-sufficiency.
“There is strong demand for imports of high-tech, semiconductors and automatic data processing equipment,” he said.
“I think it would be a mistake to attribute [the import rebound] to a really strong recovery in household demand, because you can see that overall other imports are still quite weak.”
