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China's June exports top forecasts, imports fall

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Import data underlines weak domestic demand concerns

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Orders front-loaded ahead of expected tariffs, analysts

say

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Economists expect fiscal stimulus to help boost domestic

demand

By Joe Cash

BEIJING, July 12 (Reuters) - China's exports grew at

their fastest in fifteen months in June, suggesting

manufacturers are front-loading orders ahead of tariffs expected

from a growing number of trade partners, while imports

unexpectedly shrank amid weak domestic demand.

The mixed trade data keeps alive calls for further

government stimulus as the $18.6 trillion economy struggles to

get back on its feet. Analysts warn that the jury is still out

on whether strong export sales in recent months can be sustained

given major trade partners are becoming more protective.

"This reflects the economic condition in China, with weak

domestic demand and strong production capacity relying on

exports," said Zhiwei Zhang, chief economist at Pinpoint Asset

Management.

"The sustainability of strong exports is a major risk for

China's economy in the second half of the year. The economy in

the U.S. is weakening. Trade conflicts are getting worse."

Outbound shipments from the world's second-biggest economy

grew 8.6% year-on-year in value in June, customs data showed on

Friday, beating a forecast 8.0% increase in a Reuters poll of

economists and a 7.6% rise in May.

But imports hit a four-month low, shrinking 2.3% compared

with a forecast 2.8% increase and a 1.8% rise the previous

month, highlighting the fragility of domestic consumption.

Stronger-than-expected exports have been one of the few

bright spots for an economy otherwise struggling for momentum

despite official efforts to stimulate domestic demand following

the pandemic. A prolonged property slump and worries about jobs

and wages are weighing heavily on consumer confidence.

Still, as the number of countries stepping up curbs on

Chinese goods increases, so too does the pressure on its exports

to prop up progress towards the government's economic growth

target for this year of around 5%.

China's trade surplus stood at $99.05 billion in June, the

highest in records going back to 1981, compared with a forecast

of $85 billion and $82.62 billion in May. The United States has

repeatedly highlighted the surplus as evidence of one-sided

trade favouring the Chinese economy.

Washington in May hiked tariffs on an array of Chinese

imports, including quadrupling duties on Chinese electric

vehicles to 100%. Brussels last week confirmed it would impose

tariffs on EVs as well, but only up to 37.6%.

Chinese exporters are also on edge heading into U.S.

elections in November in case either major party tips fresh

trade restrictions.

Turkey last month announced it would impose a 40% additional

tariff on Chinese-made EVs, and Canada said it was considering

curbs.

Meanwhile, Indonesia plans to impose import duties of up to

200% on textile products, which come mainly from China; India is

monitoring cheap Chinese steel; and talks with Saudi Arabia over

a free trade agreement have reportedly stalled over dumping

concerns.

DEPRESSED DOMESTIC DEMAND

The miss on imports might not bode well for exports in the

coming months, as just under a third of China's imports are

parts for re-export, particularly in the electronics sector.

China took in only slightly more chips in June in volume

terms than it did a year earlier, suggesting China's heavy

investment in expanding production of older chips - known as

legacy chips and which can be found in everything from

smartphones to fighter jets - is warping supply and demand.

The European Commission has reportedly began canvassing the

bloc's semiconductor industry for its views on China's expanded

production of legacy chips, which could constrain the Asian

giant's strong export performance in electronics.

Further signalling weak domestic demand, China's steel

exports in the first half of the year jumped 24% from a year

earlier, pointing to a faltering construction sector, which is a

heavy user of the metal.

China stocks tracked regional markets lower, with the mixed

trade data weighing on sentiment.

Analysts expect China to roll out more policy support

measures in the short term, and a government pledge to boost

fiscal stimulus is seen helping kick domestic consumption into a

higher gear.

"It appears that the stronger government bond issuance since

May has not yet fed through to increased infrastructure spending

and demand for commodities," said Zichun Huang, a China

economist at Capital Economics.

"But we expect this to occur soon, boosting the

import-intensive construction sector," she said.

Economists and investors are awaiting for the Third Plenum

to be held on July 15-18, with hundreds of China's top Communist

Party officials gathering in Beijing for a meeting that comes

every five years.