China exports make surprise return to growth

Workers at a tyre factory in China's Hebei province that exports its products to countries such as the US and Japan. A sharp drop in the yuan currency this week may offer only scant relief for Chinese exporters, who are facing both additional US levi
Workers at a tyre factory in China's Hebei province that exports its products to countries such as the US and Japan. A sharp drop in the yuan currency this week may offer only scant relief for Chinese exporters, who are facing both additional US levies on Sept 1 and sputtering demand worldwide.PHOTO: REUTERS

Gain of 3.3% in July, but rebound may be short-lived ahead of more US tariffs in Sept

BEIJING • China's exports unexpectedly returned to growth last month despite escalating US trade pressure, but the rebound may be short-lived as Washington prepares to impose even more tariffs on Chinese goods.

A sharp drop in the yuan currency this week may offer only scant relief for Chinese exporters, who are facing both additional US levies on Sept 1 and sputtering demand worldwide.

July exports rose 3.3 per cent from a year earlier, the fastest since March, Customs data showed yesterday. Analysts had expected a slightly bigger 2.0 per cent drop after June's 1.3 per cent fall.

But imports remained weak, declining 5.6 per cent and highlighting still sluggish domestic demand. Still, the drop was less than an expected 8.3 per cent and June's 7.3 per cent.

That left China with a trade surplus of US$45.06 billion (S$62 billion) last month, compared with a US$50.98 billion surplus in June. Analysts had forecast a surplus of US$40 billion for July.

The United States raised tariffs on a large number of Chinese goods in May, after trade negotiations broke down, and Beijing retaliated.

Last month saw a temporary ceasefire in the year-long trade war after leaders of both countries agreed in late June to restart negotiations and US President Donald Trump offered some concessions.

But the truce was shattered last week, after Mr Trump vowed to impose a 10 per cent tariff on US$300 billion of Chinese imports from Sept 1, which would extend levies to effectively all of the goods that China sells to the US.

  • 5.6%

  • Decline in China imports last month, highlighting still sluggish domestic demand, although the drop was less than an expected 8.3 per cent and June's 7.3 per cent.

In response, China on Monday said it would stop purchasing US agricultural products.

China's trade surplus with the US stood at US$27.97 billion last month, narrowing from June's US$29.92 billion.

But it reached US$168.5 billion in the first seven months of this year, highlighting continued imbalances that have been a core complaint of Mr Trump's in his administration's negotiations with Beijing.

On Monday, China allowed the yuan to depreciate past the 7 yuan-per-dollar level for the first time in more than a decade.

The US branded Beijing a "currency manipulator" in response.

Capital Economics predicts the yuan could be allowed to depreciate to 7.5 against the US dollar next year. "The most powerful policy tool at officials' disposal is the exchange rate, as currency weakness would directly offset much of the impact from the tariffs," said Capital Economics senior China economist Julian Evans-Pritchard in a note last week.

On the Chinese side, only US$50 billion worth of US imports remain without tariffs, fuelling speculation that China will need to resort to other methods of retaliation if Washington continues to ratchet up the pressure.

"The first question, at this point, is whether China wants to weaponise its currency to retaliate in a messy trade war," wrote Commerzbank senior economist Zhou Hao in a note on Monday.

REUTERS

 
A version of this article appeared in the print edition of The Straits Times on August 09, 2019, with the headline 'China exports make surprise return to growth'. Print Edition | Subscribe