Surprise boost in Chinese trade suggests wider global recovery, but future growth in doubt

Wed 15 Jul 2020
Posted by: William Barns-Graham
Trade News

china trade

China’s imports and exports rose in June suggesting the country’s economic recovery from the pandemic is gaining traction.

Customs data, reported in Reuters yesterday (14 July), showed imports in June rose 2.7% year-on-year, despite market expectations of a 10% drop. Imports had fallen by 16.7% in the previous month.

Exports also increased by 0.5% indicating global demand is starting to pick up as lockdown measures continue to ease. A 1.5% drop had been predicted following a 3.3% fall in May.

China’s trade surplus for May stood at $46.62bn compared with $62.93 in May.

Fragile recovery

China’s economy contracted 6.8% in the first quarter, but analysts say its recovery is fragile with global markets still grappling with the effects of lockdowns in March and April and amid continued fears of a second wave.

Exports were boosted by rising demand for PPE, drugs and medical equipment as a result of the pandemic. According to CNBC:

  • Exports of PPE soared by 32.4%
  • Exports of drugs increased by 23.6%
  • Exports of medical equipment jumped by 46.4%

Martin Rasmussen, China economist at Capital Economics, told Reuters that the export boost from pandemic-related supplies will “fade” and “weigh on exports” in the coming months, particularly while demand for other goods remains restricted

US tensions

Despite ongoing tensions between China and the US over Hong Kong, Huawei and trade, imports from the US rose by 11.3% in June. China’s surplus with the US widened by $29.41bn over the month to $27.89bn.

President Trump has previously lamented Chinese access to the US market, saying the relationship has become too one-sided to the detriment of US manufacturing.

Talks for a “Phase 2” trade deal to allay fears of new tariffs in the months ahead are not in the President’s mind, he said on Friday, warning that relations between the two countries had been “severely damaged” in recent months.

The “Phase 1” deal agreed in January put an end to an escalating tariff war which had been taking place since President Trump won the most recent US election in 2016.

Investment

Analysts say China’s recovery has been helped in part by an aggressive stimulus package to support domestic demand.

“The significant improvement in China’s imports is an indication of the country’s accelerating economic recovery, which has been mainly driven by substantial increases in investments in sectors such as real estate and infrastructure,” said Boyang Xue, a China analyst at consultancy firm DuckerFrontier, to Reuters.