China’s exports fell unexpectedly in August, as the trade war with the United States continued to hit the world’s second-largest economy.
Shipments fell by 1 per cent in the month after growing 3.3 per cent in July in dollar terms, and below the 2.1 per cent growth expected by analysts in a Bloomberg poll. Imports in the month dropped by 5.6 per cent, leaving a trade surplus of US$34.84 billion, according to China’s General Administration of Customs.
July’s expansion now seems like an anomaly, likely driven by front-loading as new tariffs of 15 per cent on about US$110 billion of Chinese goods that took effect on September 1. American buyers of Chinese goods subject to the new tariffs were likely to have filled their inventories as much as possible before the goods became more expensive to import.
Furthermore, the much-reported 3.8 per cent depreciation of the yuan in August failed to stop the decline in exports – despite Washington’s fears that it was being used to give China’s exporters an unfair advantage.
It is a far cry from the double-digit expansion that characterised the export machine that powered the Chinese economy for more than two decades.
China’s exports to the United States in August totalled US$37.3 billion and imports US$10.35 billion, for a trade surplus of US$26.95 billion.
The weak export figures will put further pressure on China’s already slowing economy. The central bank on Friday said it would cut the amount of cash banks must hold as reserves to the lowest level since 2007 in a bid to inject liquidity into the economy and stimulate demand.
Analysts have been raising concerns about China’s consumption levels for months, with retail sales underperforming and various bouts of government stimulus failing to kick-start purchases of big ticket items such as cars. The sluggish imports suggest the government support has yet to trickle into the real economy.
The import slump also points to a downturn in the manufacturing sector: many of China’s imports are components ordered by factories, often for use in goods for export. In the most recent official manufacturing purchasing managers’ index, a gauge of factory owners’ sentiment, export orders remained in negative territory for the 15th month in a row.
In a report released on Thursday, the Institute of International Finance, an organisation of bankers based in Washington, had said that China’s surplus over the first half of the year had hit record highs, despite the ongoing trade war.
“Meanwhile, our proxy for China’s underlying trade surplus, which controls for commodity prices by excluding oil and iron ore, was the highest ever in the first half of 2019,” read the report.
“Perhaps more surprising, given repeated rounds of tariffs, is that China’s exports remain robust. Part of the resilience in China’s exports reflects a shift in composition, away from the US and towards the euro zone and other economies in Asia, including Vietnam,” the authors said.
Top negotiators from China and the US are set to meet in early October for their first face-to-face talks since August. The US raised tariffs on Chinese goods at the start of the month, and is set to add further penalties in October and December if there is no breakthrough in their trade talks.