China July export figures add to slowdown fears

Fear of faltering demand from China’s two biggest foreign customers, the European Union and United States, lead economists to cut their export forecasts

China’s July exports rose just 1% from a year earlier, undershooting forecasts by a big margin and adding to a downbeat set of monthly data that has boosted expectations of fresh government action to shore up the economy.

Fear of faltering demand from China’s two biggest foreign customers – the European Union and United States – had seen economists peg back their consensus call for annual export growth to a three-month low of 8.6% in a Reuters poll last week.

Instead, the 1% rise is the weakest since January, when exports fell, and marked a big pullback from annual growth in June of more than 11%. Shipments to the European Union dropped more than 16%.

July imports rose 4.7% from a year earlier, the weakest pace since April and also well short of expectations for an increase of 7.2%.

“China will not escape from the global slowdown,” said Banny Lam, China economist at CCB International in Hong Kong. He said that the central bank might cut the amount banks must hold as reserves, which frees up cash that they could use for lending, as early as this weekend.

Ahead of the data, China vice commerce minister Gao Hucheng had told reporters it would be a challenge for China to meet its 10% trade growth target in the second half of the year. Just last month, the ministry had said it was confident of meeting the target.

Taiwan on Monday posted a fifth straight month of decline in exports in July, dragged down by double-digit drops in shipments to China, Europe and the United States, while South Korea’s July exports were the worst in nearly three years.

Data on Thursday showed annual growth in China’s factory output slowed to its weakest in more than three years in July, missing market forecasts. Other activity figures were also weaker than had been expected.

The first hard data for the third quarter has already led some economists to question the strength of what was in any event expected to be the start of a shallow rebound.

“Those looking for signs of resilience in China’s economic data were merely disappointed yesterday, but they are going to be distraught today,” Alistair Thornton and Xianfang Ren, economists at IHS Global Insight in Beijing, wrote in a client note.

“This complicates the prospects for an imminent recovery. With the export sector losing speed faster than expected, the government’s current investment stimulus plan looks woefully inadequate,” Thornton wrote.


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