Cautious optimism ahead

June trade data bodes well for China growth

Though most of the recent commentaries on the June trade figures hint at the possibility of a fresh slowdown in China, I hold a completely different view altogether.

The General Administration of Customs said China's exports rose 11.3 percent year-on-year to $180.21 billion (146.99 billion euros) last month, slowing from the 15.3 percent rise in May. Imports increased 6.3 percent to $148.48 billion, compared with a growth of 12.7 percent a month earlier.

Both exports and imports, when combined together, fell back to single-digit growth, or 9 percent, after growing 14.1 percent in May. That was probably why some analysts said the June figures reinforced the argument that the Chinese economy, the world's second largest, was heading for a hard landing.

It is absolutely safe to say that China's foreign trade, as well as the entire economy, is not as robust as it was in the past two years. But the trade is not doing as bad as it was during the 2008 financial crisis.

Going by the May and June figures, one can say that China's trade is more than resilient, and there are chances of a moderate recovery in the months ahead.

Based on the figures after seasonal adjustments, exports in June actually grew faster. They increased by 12.4 percent year-on-year, faster than the 11.1 percent growth in May and far better than the 6.1 percent mark in April.

The figures show that China's exports witnessed a steady increase, despite concerns that the European debt crisis is deepening.

Chinese shipments to the European Union did not register any significant decline in June. It was down 1.1 percent to $30 billion. The decline was smaller than any other month of the year, expect for May, when exports to the EU grew by 3.4 percent.

This shows that the European demand for Chinese goods has become stable after several months of decline. Amid the faltering European economy, it was anticipated that European businesses would stop importing Chinese goods they deem expensive or unnecessary. To some extent that has also been the reason why demand for Chinese products has been weak this year. But it will not weaken further as most of the current European purchases are daily necessities. Daily necessities are largely resilient in an economic recession.

China's exports to the United States, which overtook the EU to become China's largest export destination in the first half, remained stable in June. They grew by 10.6 percent, the largest growth since March. The stable demand from the US will more than offset the loss from the EU.

Incentives designed by the government in the next few months are also expected to ease the pain for exporters.

On the import side, the June figure was a bit pessimistic, but it was not as bad as many have described.

The growth, 6.3 percent, was about half the pace of what the market had predicted. The less healthy import growth was cited by many analysts as a sign of sluggish domestic demand. Based on that conclusion, they said that the Chinese economy would slow further in the third quarter.

But that conclusion was not well considered. Traditionally, the month of June is not a season for Chinese importers to buy finished foreign products for people to consume. It is a time for factories to stock up raw materials to be processed into final products for export. So the import figures for June is a barometer of the prospects for future exports, instead of an indicator of domestic consumption.

But does a slackening import figure in June mean future exports will lack luster? Not necessarily.

The absolute value of imports of raw materials in June grew slower than expected. But in terms of volume, imports of raw materials, including crude oil, iron ore and copper - three major items factories like to buy before peak production period in August - jumped rather remarkably in June. That was because prices of these items dropped a lot.

Given that the actual volume of raw material imports rose in double digits, exports in the coming months have a chance to grow steadily, if not robustly.

The author is a financial analyst based in Shanghai.

(China Daily 07/13/2012 page19)