China's export engine is revving up, imports are strongly stuttering
The Chinese economic data for June show only partial economic recovery. Encouraging signs come from export figures, a growth driver for the economy. However, domestic demand surprised with a decline.
China's foreign trade sent mixed signals in June. The export engine revved up with a 8.6% increase compared to the previous year, according to customs data. This was the strongest growth in 15 months. However, imports into China unexpectedly decreased by 2.3%. This was due in part to the ongoing consumption downturn. The call for new economic stimulus measures grew louder. The Central Committee of the Communist Party is holding a crucial meeting, known as the Plenum, from Monday.
The focus of this four-day closed-door session for leading cadres should be on long-term economic reforms. The export data are certainly a bright spot for the Beijing government, which is trying to boost the economy, which is suffering from a real estate crisis, unemployment, and a consumption downturn. However, they also indicate that export businesses may have accelerated exports of certain Chinese products in anticipation of additional tariffs. China is exporting batteries, solar modules, semiconductors, and other industrial goods in large quantities to the world market. This has sparked criticism in the West that the People's Republic is using state subsidies to gain unfair advantages in international trade. The EU recently responded with provisional tariffs on electric car imports.
According to experts, it is questionable whether the export engine can continue to run at such high speeds: "The sustainability of strong exports is a significant risk for China's economy in the second half of the year. The US economy is weakening. Trade conflicts are escalating," said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management. The more trading partners impose tariffs on Chinese goods, the more pressure there will be on China's exports, according to experts. The leadership in Beijing has set a rather ambitious economic growth target of around 5% for this year.
US Displeased with Surplus
China's trade surplus amounted to $99.05 billion in June (approximately €91.24 billion), the highest recorded value since 1981. Experts had only expected $85 billion. The US has long considered the surplus an irritant. In particular, the former US President Donald Trump, who is expected to run again in the November election, has frequently criticized the large US trade deficit and accused countries like China of taking advantage of the US. The US raised tariffs on a range of Chinese imports in May under Trump's successor, Joe Biden.
The Chinese exports to Russia in Yuan denominations increased by 4.76% in June compared to the previous year and more strongly than in May (0.92%). However, growth rates in the double-digit percentage range were still on the agenda at the beginning of the year.
Even when the export motor is running, China is suffering from weak domestic demand. This is also evident in the fact that imports decreased by 2.3 percent in June. Economists had expected an increase of 1.8 percent in June based on the rise in imports in May. However, their forecast of a 2.8 percent increase was incorrect. The reverse imports, which account for nearly one third of Chinese imports - particularly in the electronics sector - may not be a good sign for exports in the coming months.
Handel's interpretation of China's economic data suggests that while export growth is strong, the decline in domestic demand could pose a challenge for the country's economy, as stated by Handel, an economist at a global investment firm. Furthermore, China's large trade surplus with the United States, amounting to $99.05 billion in June, has been a long-standing irritant for the US, particularly under former President Donald Trump's administration.
