China Posts Record Surplus as Exports-Imports Diverge

By Bloomberg News

Photographer: Tomohiro Ohsumi/Bloomberg

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China’s trade surplus climbed to a record in August as exports (CNFREXPY) rose on the back of increased shipments to the U.S. and Europe, while imports fell for a second month as a property slump hurt domestic demand.
Exports increased 9.4 percent from a year earlier, the Beijing-based customs administration said today, compared with the 9 percent median estimate in a Bloomberg survey. Imports unexpectedly dropped 2.4 percent, leaving a trade surplus of $49.8 billion.
Divergent directions for exports and imports show China is some way from providing the global growth boost that IHS Inc. this month forecast will see it eclipse the U.S. economy in 2024. Languishing domestic demand underscores risks to
the government’s economic-growth target this year of about 7.5 percent as home prices and construction fall, boosting chances of additional stimulus.
“A targeted cut in mortgage rates is more and more likely,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “If the weakness in the property market can’t be reversed, it’s difficult for the government to reach its annual growth target of 7.5 percent.”
Sustaining export gains may also be challenging because geopolitical risks are weighing on Europe’s economic outlook, said Shen, who formerly worked at the European Central Bank.
The increase in exports follows a previously reported 14.5 percent jump in July and compares with analysts’ estimates for gains ranging from 4.9 percent to 17 percent. The median projection for imports was a 3 percent increase, after a 1.6 percent drop in July, and the trade surplus was forecast at $40 billion, following a previous record of $47.3 billion in July.

Healthy Exports

Exports to the U.S. climbed 11.4 percent in August from a year earlier, while shipments to the European Union increased 12.1 percent, according to government data compiled by Bloomberg. Imports from the U.S. declined 3.1 percent.
“We expect exports to remain healthy as conditions in developed markets continue to improve,” Julian Evans-Pritchard, China economist at Capital Economics Ltd. in Singapore, wrote in a note. “Meanwhile, subdued commodity demand is likely to remain a drag on import growth going forward. As a result, we expect China to continue to post large trade surpluses, which should put further upwards pressure on the renminbi.”
The offshore yuan traded in Hong Kong rose to 6.1357 per dollar, the strongest level since Aug. 19, before trading at 6.1360 as of 12:22 p.m. local time, according to data compiled by Bloomberg. Hong Kong’s Hang Seng Index slipped 0.3 percent. Markets in mainland China were closed today for the Mid-Autumn Festival holiday.

U.S. Economy

China’s exports are being helped by U.S. economic growth that rebounded to a 4.2 percent annualized pace in the second quarter, with measures of consumer confidence and manufacturing rising in August, and construction spending increasing in July from the previous month by the most in two years.
The trade surpluses will add to pressure for the yuan to appreciate “in order to avoid international tension,” Louis Kuijs, chief Greater China economist at Royal Bank of Scotland Group Plc in Hong Kong, said in a note.
China’s leaders have taken steps to support growth this year including expediting railway spending, cutting some taxes and freeing up money for loans for agriculture and small businesses. At the same time, they’ve shied away from stronger measures such as lowering interest rates and reserve requirements for banks nationwide.

‘Bolder Approach’

Should downward pressures on growth intensify in coming months, “we would not rule out a shift to a bolder approach, with more general and higher profile measures” to support expansion, wrote Kuijs, who formerly worked at the World Bank.
Today’s figures follow indications in data last week that manufacturing is slowing. The government’s Purchasing Managers’ Index (HSI) fell to 51.1 in August and a similar gauge from HSBC Holdings Plc dropped to 50.2, both from 51.7 in July.
Apple Inc.’s new version of the iPhone may boost China’s exports by about 1 percent a month for the rest of 2014, Bank of America Corp. economists led by Lu Ting in Hong Kong said in a note last week. The company tomorrow will announce a range of new products, including bigger-screen iPhones and a new wristwatch-like wearable device, according to people familiar with the plan.
Data due in the coming days will fill out the picture of China’s economy in August. The National Bureau of Statistics will report on inflation on Sept. 11, followed two days later by industrial production, retail sales and fixed-asset investment.
The People’s Bank of China will provide figures on lending and money supply by the middle of the month, after July numbers showed a plunge in the nation’s broadest measure of new credit.
“The continued weakness in imports highlights the soft domestic demand and fragile growth recovery in China,” Jian Chang, chief China economist at Barclays Plc in Hong Kong, wrote in an e-mail.