Date
22 October 2017
Property curbs and a tight grip on local government debt may constrain domestic demand in the second half. Photo: Reuters
Property curbs and a tight grip on local government debt may constrain domestic demand in the second half. Photo: Reuters

China growth outlook less rosy than trade number suggests

On the surface, China’s latest trade data indicates a rather promising economic outlook.

Imports rose 17.2 percent in June in US dollar terms, and exports also increased — by 11.3 percent — leading to a trade surplus of US$42.8 billion last month.

But if one looks closer, there are a few soft spots.

For example, the nation’s electronic and machinery exports dropped by US$600 million to US$4.7 billion in June from the previous month. Steel and coal exports even contracted, showing that foreign demand for raw materials is waning.

Meanwhile, China’s imports of iron ore, crude oil, natural rubber and synthetic rubber imports all dropped in June compared with the previous month.

Imports of high-tech products fell to US$3.5 billion in June from US$4.2 billion in May.

On external demand, although China’s exports to developed nations, like the US, Europe and Japan, picked up last month, shipment to emerging markets like ASEAN members moderated.

The leading indicators PMI in both the US and Japan has shown signs of easing recently, and the eurozone economic cycle usually lags behind the US, indicating that external demand in the second half may not be that robust.

Meanwhile, a drop in the nominal effective exchange rate of the Chinese renminbi gave a boost to exports. Yet, room for further decline of the currency looks limited.

In the meantime, domestic demand is also in question.

China is set to further tighten property curbs and keep a tight grip on local government debt. As a result, the nation’s housing and infrastructure sectors are set to see moderating investment growth.

This article appeared in the Hong Kong Economic Journal on July 17

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Senior investment banker

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