China’s exports up solidly but slowing imports dim trade outlook

China's exports grew at their fastest pace in nearly 1-1/2 years in August, suggesting manufacturers are rushing out orders ahead of tariffs expected from a growing number of trade partners, while imports disappointed amid weak domestic demand.

The mixed trade data highlights the challenge facing Beijing as policymakers try to bolster overall growth without becoming too reliant on exports, especially given the tightening of consumers' purse strings.

China's economy has failed to fire over the past year amid a prolonged property sector downturn, and a survey last week showed exports in the doldrums and factory gate prices at their worst in 14 months, pointing to producers slashing prices to find buyers.

Outbound shipments from the world's second-largest economy grew 8.7% year-on-year in value last month, the quickest since March 2023, customs data showed on Tuesday, beating a forecast 6.5% increase in a Reuters poll of economists and a 7% rise in July.

But imports increased by just 0.5%, missing expectations for a 2% boost and down from the 7.2% growth a month prior.

"The strong export performance and trade surplus are favourable to economic growth in the third quarter and whole year," said Zhou Maohua, a macroeconomic researcher at China Everbright Bank.

"However, the global economic and geopolitical environment is complicated and China's exports face a lot of headwinds."

Economists have warned that Beijing risks undershooting its growth target if it becomes too reliant on exports, following a series of lacklustre data, raising pressure on policymakers for more stimulus to revive China's economy.

"The continued strong run of exports may actually delay near-term policy support, and we continue to expect bolder measures to be released in Q4," Nomura analysts said in a note.

Outbound shipments to the European Union grew 13.4% in August year-on-year, which represented the biggest increase out of China's major export markets, followed by an 8.8% lift in sales to the Southeast Asian economies.

Chinese exports to the U.S. rose by just an annual 4.9% last month but imports grew 12.2% over the same period, the most of any major import market.

TRADE BARRIERS

Mounting trade barriers are emerging as another significant obstacle, threatening China's price-driven export momentum.

China's trade surplus with the United States widened to $33.81 billion in August from $30.84 billion in July. Washington has repeatedly highlighted the surplus as evidence of the one-sided trade favouring the Chinese economy.

Brussels' trade policy has turned more protective too, and Beijing's efforts to negotiate with the EU to ease tariffs on Chinese electric vehicles (EVs) have made little headway.

Last month Canada announced a 100% tariff on Chinese EVs, along with a 25% tariff on Chinese steel and aluminium.

As China attempts to direct more exports towards Southeast Asia and South Asia, it is also facing pushback there.

India is planning to raise tariffs on Chinese steel, Indonesia is eyeing heavy duties on textile imports, and Malaysia opened anti-dumping investigations into plastic imports from China and Indonesia.

Still, some analysts expect outbound shipments to ride out the storm, given the relative inexpensiveness of China's yuan and the relative ease with which exporters can re-route their wares to avoid tariffs.

"Outbound shipments are likely to remain strong in the coming months. Admittedly, more barriers are being erected," said Zichun Huang, China Economist at Capital Economics.

"We doubt the tariffs announced so far will prevent real effective exchange rate declines from fuelling further gains in China's global export market share," she added.

SLOW IMPORTS

The lower-than-expected imports might not bode well for exports in the coming months, as just under a third of China's purchases are parts for re-export, particularly in the electronics sector.

China's commodities purchases also pointed to a bleak domestic picture, with iron ore imports down 4.73% last month from a year earlier, as weak demand in the country's construction sector pinched steelmakers.

Furthermore, while China bought in a record 12.14 million metric tons of soybeans in August, there were ominous signs for the production powerhouse's future export performance.

Analysts say the buying spree was motivated by traders taking advantage of lower prices to stock up amid concerns that trade tensions with the U.S. could intensify if Donald Trump returns to the White House next year.

On the whole, while August exports were positive for growth, "it is still uncertain if this momentum can last," said Lynn Song, ING's chief economist for China.

"Aside from incoming tariffs and the sluggish export orders data of the last few months, if global growth momentum begins to slow too, this could also drag export momentum."