Disappointing July Imports from China Indicate Cooling Domestic Demand, Says Reuters

By Elias Glenn and Yawen Chen

BEIJING – China’s exports and imports experienced a larger-than-expected decline in July, marking a challenging beginning to the third quarter. This downturn reflects ongoing weakness in global demand, amplified in the wake of Britain’s exit from the European Union.

Imports fell by 12.5 percent compared to the same month last year, representing the steepest drop since February. This decline signals potential weakening in domestic demand, even as the government implements various measures to stimulate economic growth.

Ma Xiaoping, an economist at HSBC in Beijing, attributed the drop in imports primarily to reduced demand. She warned that government initiatives aimed at curbing overcapacity could further impact demand in the upcoming months.

According to the General Administration of Customs, exports fell by 4.4 percent year-on-year. The agency anticipates that the pressure on shipments may start to ease in October. As a result, China recorded a trade surplus of $52.31 billion in July, the largest since January, compared to a surplus of $48.11 billion in June.

China’s imports have now decreased for 21 consecutive months, while exports have declined in 12 of the last 13 months, contributing to the slowest economic growth in a quarter of a century.

Julian Evans-Pritchard, an economist at Capital Economics, noted that although several key trading partners are showing signs of stronger manufacturing activity, this has not translated into improved export growth for China, which is likely to remain subdued for the foreseeable future.

Economists had predicted continued weakness in trade but expected some moderation, anticipating that factories would ramp up production in preparation for the peak year-end shopping season. July’s exports were expected to decrease by 3.0 percent, a slight improvement from June’s 4.8 percent decline, while imports were projected to fall by 7.0 percent after an 8.4 percent drop in June.

Even with robust shipments of steel and oil products peaking to record levels, China’s export figures fell short. The nation has faced criticism from trade partners for allegedly offloading excess industrial capacity into global markets.

Exports to the United States, China’s largest market, declined by 2.0 percent in July, while shipments to the European Union fell by 3.2 percent. Although the drop in exports to the EU showed some moderation, economists at ANZ warn that Brexit could further affect China’s exports to Europe in the coming months.

Moreover, imports from the U.S. fell by 23.2 percent year-on-year in July, compared to a 12.7 percent decline in June. The yuan has depreciated more than 6 percent against the dollar over the past year, yet this has had minimal impact on boosting China’s export performance amidst persistent global demand challenges and weak commodity prices.

For the period from January to July, China’s exports fell by 7.4 percent, while imports decreased by 10.5 percent, aligning closely with last year’s 8 percent decline.

In the second quarter, China’s economy grew by 6.7 percent year-on-year, surpassing predictions, thanks to a government-driven infrastructure boom and a housing surge that spurred demand for materials across various sectors.

Although iron ore imports saw an 8.1 percent increase in volume during the first seven months of the year, recent factory activity surveys indicated a slowdown in both domestic and export orders in July, compounded by severe flooding in certain regions.

As discussions about potential interest rate cuts or reductions in banks’ reserve requirements continue, most analysts emphasize the importance of focusing on structural reforms. Ma from HSBC highlighted that short-term changes in the economy will largely depend on the government’s reform initiatives targeting state-owned enterprises.