Widening trade surplus adds to China growth fears

10 July 2012 | By Gary Jackson

China’s trade surplus unexpectedly jumped in June as import growth weakened, renewing fears on the health of the world’s second largest economy.

Figures released by the General Administration of Customs show the trade surplus widened to £20.46bn last month. This is an increase of 42.9 per cent on the same month in 2011.

Weaker imports, especially in commodities, was the main reason for the move. Annual import growth was 6.3 per cent in June, dropping from the 12.7 per cent reported in the previous month and suggesting the domestic economy, a major contributor to global growth, is slowing.

Exports remained quite strong over the month, despite a drop in those going to the US and continued weakness in trade with Europe.

Premier China Enterprise fund manager Fen Sung says: “There is a slowdown. Export figures have come down from last month but import figures show a larger slowdown.

“One thing to bear in mind is that the oil price has come down, which will affect the figures.”

China will publish its second quarter GDP numbers at the end of the week. Sung expects growth for the three-month period to be about 7.5 per cent, down from 8.1 per cent in the first quarter. This outlook is supported by recent falls in electricity and diesel use, he says, which are good indicators of underlying growth.

However, he maintains that China will escape a hard landing this year, as the country still has policy levers that it can use to stimulate the economy. Indeed, the manager predicts that the central bank will announce a further cut to the reserve requirement ratio in the coming weeks to prompt banks to increase lending.

Capital Economics chief Asia economist Mark Williams says: “Three points leap out from China’s June trade data.

“Exports to the US have taken a sudden turn for the worse. Commodity imports have slumped. And the trade surplus has returned to the level it was at before the global financial crisis.”

He adds that if upcoming data shows lending increased to a decent level in June, the weak import figure could be considered “essentially old news”.

“However, given that the People’s Bank felt it necessary to cut rates again last week, it seems likely that lending remains relatively weak,” Williams says. “Today’s figures only add to the gloom.”

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