China Export Growth Falters, Yuan at 16-Month High

Chinese exports grew slower than forecast in August, hit by weak global demand, but analysts said Friday that a jump in imports indicated a pick-up domestically and point to a further improvement.

The figures follow a run of broadly positive readings in recent months, which have provided some optimism in the world’s number two economy and key driver of global growth, AFP reported.

Exports increased 5.5% year-on-year, the customs administration said, down from 7.2% in July and well off the 6% in a Bloomberg News survey.

“There appears to have been a broader decline in external demand,” Julian Evans-Pritchard of Capital Economics said in a note. But, he added that “further downside to export growth should be limited by the fairly positive outlook for China’s main trading partners”.

Imports climbed 13.3%, beating July’s 11% and the 10% forecast in the Bloomberg survey. The trade surplus for the month came in at $42 billion.

“Strong imports reflect the momentum of domestic demand. It seems that third-quarter gross domestic product will see an upside risk again,” Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd, told Bloomberg News.

Evans-Pritchard added that ambitious Chinese producers encouraged by higher industrial metal prices have contributed to surging inbound shipments of iron and cooper ore.

The strong import figures are likely to be welcomed by the country’s leaders who are trying to recalibrate its growth model from one driven by exports and state investment to one based on domestic consumption.

The trade data came a day after the People’s Bank of China announced a rise in China’s foreign exchange reserves, indicating the central bank would shift its priority from curbing capital outflow to controlling yuan appreciation, Evans-Pritchard said in a previous note.

Earlier this year the yuan sank to almost 7.0 to the dollar, a level not seen in almost eight years—hit by capital outflows as the economy struggled and traders bet on US rate hikes.

However, it has enjoyed a resurgence in recent weeks and is now at a 16-month high around 6.5 thanks to lower expectations the US Federal Reserve will lift interest rates again this year, tighter controls on capital outflows and improving economic performance.

“The strong yuan is favorable to China if they want to buy more from the rest of the world,” Yeung said.

The Chinese economy saw better-than-expected growth in the first two quarters of the year thanks to debt-fuelled investment in infrastructure and real estate although warnings of a potential financial crisis have spurred Beijing to clamp down.