China - July foreign trade

Exports remain resilient, but the leading indicators continue to point down, with imports of components slowing again in July. It is likely exports are contracting before the end of the year.

Headline YoY export growth accelerated in July for the second consecutive month. That was partly base effect, with the USD value of exports ticking down from June. Leading indicators continue to point down, with the continued softening in imports of components in July suggesting that export growth will turn negative in the coming few months.

That all said, the July export data were firm overall, and continue to suggest if exports are to weaken, it is a softening, not a collapse. The strength over the last couple of months has been led by shipments to the EU and ASEAN, which doesn't feel like a particularly firm foundation for future growth. In terms of products, the recent standout has been exports of labour-intensive goods, which reached a new recent high in July. Tech exports have also bounced, but remain below the peak of January. Sales of autos and auto parts are also strong, though for the time being these aren't particularly important drivers of China's overall exports.

Retained import demand has also picked up the last couple of months. Even more than exports, that seems unlikely to be sustained, given the continued weakness in domestic demand. The firmness of imports did weigh the trade surplus in July, but not much: the surplus remains near all-time highs.