China's export trade grew surprisingly in July 2022, beating analysts' estimates. This pushed China's trade surplus. China recorded that its exports in the value of the United States (US) dollar grew 18% year on year (yoy) in July 2022. The value of China's exports was higher than economists surveyed by Bloomberg previously estimated that it would only grow 14.1%. As a result, the trade balance of the country with the second largest economy in the world rose to US$ 101 billion. The data is good news for China amid concerns that weakening global demand will disrupt its economic growth during the pandemic era.
However, China still has to find a strategy to maintain its economic recovery path considering that the global economy is still slowing down.
Economists warn that the surge in exports is unlikely to last forever.
"The health of China's economy in the second half of the year will largely depend on the ability of domestic demand to take over from slowing external demand," said Larry Hu, chief China economist at Macquarie Group Ltd., Monday (8/8).
Hu predicts China's trade surplus in July, which reached its highest level since 1987, could narrow in the coming months amid an increasingly slowing global economy.
The increase in exports was mainly supported by shipments of cars, steel products and textile-related products, according to analysis by Goldman Sachs Group.
Car export growth increased 64% yoy in July 2022, from the same period last year which only grew 21.2%. Meanwhile, the increase in shipments of steel products remained solid at 41.2%.
Shipments to Southeast Asia and the European Union were among the strongest, growing 33.5% and 23.2%, respectively. Meanwhile, exports to Russia jumped significantly by 22.2%, after dropping 17% in June.
"Strong export growth continues to help the Chinese economy while domestic demand remains slow," said Zhang Zhiwe, president and chief economist at Pinpooint Asset Management.
He said the strong growth boosted confidence in the yuan's exchange rate, which helped prevent capital outflows.
Meanwhile Eric Zhu, Bloomberg Economist sees that the strong increase in exports in July will not last long. According to him, the growth was due to exporters pursuing businesses that were delayed due to the lockdown.
"With pent-up shipments fading, exports will slow for the rest of the year, eroding a key cushion for growth and making the economy more vulnerable to pressure from property turmoil and the shackles of Covid-19," he said.
Hu of Macquarie said the resilience in exports could be a result of China's Zero Covid strategy, which benefits production at the expense of consumption, adding that this year's weaker yuan and price effects could help explain the export data.
He pointed out that China's export price inflation is largely in line with US CPI inflation. "In July, about half of the main export growth was likely due to the price effect," he wrote.
China's Covid Zero strategy, however, has weighed on the demand side, Hu added. Imports in July rose by 2.3%, compared with a 1% increase in June and lower than the median forecast for an increase of 4%.
In addition to the increase in crude oil imports, incoming shipments of commodities including soybeans, natural gas, and copper decreased every month.
Domestic demand has remained sluggish this year as the Covid outbreak and lockdowns have kept people in their homes and prevented them from shopping. The threat of repeated caps if the turmoil resurfaces also weighed on sentiment.
Beijing has adopted a number of measures to boost demand this year, including cutting purchase taxes on some low-emission passenger vehicles and asking local governments to support reasonable demand in the housing market, which has remained a concern this year amid turmoil in the property sector.