Exports are still weak, primarily due to sluggish global trade and low demand for manufactured goods. Evidence of weaker global demand can also be seen in the recent PMI numbers. Domestic sectors like construction and services are relatively strong, but overall manufacturing remains flat, with new export orders falling below 50 to 49.6. Most of the declining year-on-year changes in China’s trade numbers are a result of weak external demand and commodity prices.
Here are some key things to note in the June trade data:
- Commodity import volumes are still rising. Copper shipments to China rose more than 20% from June last year. Iron ore and oil volumes are rising faster than overall economic growth. Industrial metal demand will continue for the rest of the year as construction heats up from the recent housing rebound.
- If we adjust for commodity prices, imports were up roughly 3% from last year, with the bulk of the weakness from manufacturing imports for processing. The negative commodity price effect on imports will diminish after the end of next month, if commodity prices in general remain stable.
- Imports and exports for trade processing declined more than general trade for domestic purposes. Imports for processing fell 15%, and exports for processing dropped 9.6% from last year. Exports and imports from key manufacturing economies on the global trade supply chain also fell.
- Capital outflows disguised as trade flows moderated. Imports from Hong Kong, up over 240% last month, rose only 70% in June. Capital outflows are still taking place, but the pace has dropped.
- Going forward, expect weak export numbers until global trade accelerates again, even with a weaker yuan. Import numbers will move into the positive after next month, as the negative numbers due to price drops over the last year will fade. Overall, the numbers confirm what we have seen in the PMI numbers already: Weak economic activity due to sluggish external demand, but stable to positive domestic demand, for construction related commodities in particular.