China's export growth reached its highest pace in fifteen months this June, indicating that manufacturers are accelerating orders in anticipation of potential tariffs from a growing list of trade partners. However, imports saw an unexpected decline due to weak domestic demand. This mixed trade data underscores the need for further government intervention as China's $18.6 trillion economy strives to recover.
An industry economist commented on the situation: "This reflects China's economic condition, with weak domestic demand and strong production capacity relying on exports. The sustainability of strong exports is a major risk for China's economy in the second half of the year."
China's exports rose by 8.6% year-on-year in value this June, surpassing the forecasted 8.0% increase and May's 7.6% rise. In contrast, imports dropped to a four-month low, decreasing by 2.3%, highlighting the ongoing fragility of domestic consumption.
Despite efforts to boost domestic demand following the pandemic, a prolonged property slump and concerns over jobs and wages are dampening consumer confidence. As more countries impose restrictions on Chinese goods, the pressure mounts on exports to sustain the government's economic growth target of around 5% for this year.
China's trade surplus hit a record $99.05 billion in June, the highest since records began in 1981, surpassing forecasts of $85 billion and May's $82.62 billion. This surplus has been a point of contention, with various nations imposing tariffs on a range of Chinese imports, including electric vehicles and other goods.
Chinese exporters are increasingly wary of potential new trade restrictions, especially with upcoming elections in a major trading partner. Other nations, including Turkey, Canada, Indonesia, and India, are considering or have already imposed tariffs on Chinese products, adding to the uncertainty.
The decline in imports could impact future exports, as a significant portion of China's imports are components for re-export, particularly in electronics. This situation signals weak domestic demand, with steel exports rising 24% in the first half of the year, reflecting challenges in the construction sector.
Analysts anticipate that China will introduce more policy support measures to stimulate domestic consumption. Economists and investors are also keenly awaiting the Third Plenum, scheduled for July 15-18, where top officials will convene in Beijing.
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