China's July export surge may point to more sustainable recovery

BEIJING China’s economy appeared to be gathering pace in July as exports rose the most this year while some raw material imports hit record highs, adding to hopes for a more sustained recovery.

The economy is gradually emerging from a record contraction in the first quarter but the recovery remains fragile as rising coronavirus cases around the world and renewed lockdowns could hit demand. Chinese consumer spending also remained subdued amid job losses and concerns about a resurgence in infections.

The country’s export performance, however, has not been as severely affected by the global slowdown as some analysts had feared, while signs of stabilisation in the domestic economy have reduced the urgency for more stimulus.

Exports in July increased 7.2% from a year earlier, the fastest pace since December last year, customs data showed on Friday, confounding analysts’ expectations for a 0.2% drop and quickening from a 0.5% increase in June.

Imports, on the other hand, fell 1.4%, missing market expectations for a 1.0% increase.

“The data is in line with our forecast for exports to recover more decisively in H2 alongside the global economy,” Tommy Wu, lead economist at Oxford Economics, said in a note, adding that external demand for other products, besides medical supplies, will recover gradually as global industrial production starts picking up.

“However, the road ahead may be bumpy as new export orders remain weak and the recovery path will be uneven across economies.”

January-July exports of textile products, including face masks, rose 31.3% y/y, quickening from a 27.8% expansion in the first half. Growth of sales in medical equipment also picked up to 47.3% from 41.4%.

But in a sign that global demand may be stabilising, exports of other goods such as electronicss and mobile phones increased while declines in furniture and toys moderated, the data showed

DIP IN IMPORTS

Analysts attributed the year-on-year dip in July imports to weaker commodities prices and payback following strong shipments the previous year.

They are optimistic that a ramp-up in infrastructure projects on the back of policy support will lift import growth. Imports rose 4.9% in July on a monthly basis.

“With credit growth still accelerating, China’s stimulus-led recovery looks set to continue in the coming months, supporting a further rebound in imports,” said Martin Rasmussen, China Economist, at Capital Economics.

Import volumes of industrial raw materials remained robust, with record imports of iron ore and copper, along with a sharp jump in crude oil.

The country’s trade surplus for July stood at $62.33 billion, up from a surplus of $46.42 billion in June.

A risk for China’s trade outlook this year is heightening U.S.-China tensions which are expected to escalate ahead of the United State’s presidential election.

The country’s trade surplus with the United States widened to $32.46 billion in July from $29.41 billion in June.

China’s imports from the United States in July rose 3.6% from a year earlier, slowing from a 11.3% gain in June. In January-July, imports fell 3.5%, falling short of the commitments made in the Phase 1 trade deal to increase purchases of American goods.

Senior U.S. and Chinese officials are set to review the implementation of the Phase 1 trade deal and likely air mutual grievances during a video conference on Aug. 15.

(Additional reporting by Colin Qian; Editing by Jacqueline Wong)

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