China’s August trade surplus soars

China’s August trade surplus surged after imports declined for the second successive month while exports soared, according to data from the General Administration of Customs. Import growth in August was the weakest in over a year, triggering concerns about domestic demand.

Despite falling commodity prices, which contributed to August’s fall in the value of imports, economists say domestic demand appears to be dwindling rapidly.

Lackluster import demand suggests that Beijing’s stimulus moves that had been put in place earlier this year have only had a temporary effect. It is likely the government may consider more measures.

Imports declined by -2.4% in August compared to the same month last year, while exports grew by 9.4%. July’s export growth was 14.5%.

China’s August trade surplus jumped to a record $49.8 billion, up from $47.3 billion in July.

Analysts believe China needs a combination of policy easing to boost domestic demand, while at the same time a currency rise to control the trade surplus.

2014 a bumpy year for China

So far, this has been a year conflicting economic data for China. After a poor first quarter, Q2 improved marginally when the government introduced a series of stimulus measures. However, in July things started to go sour again. August manufacturing activity was surprisingly weak.

At the end of August, however, The Conference Board published some economic data which indicated that China’s economic outlook had improved considerably. Its Leading Economic and Coincident Economic Indexes had increased 1.3% and 1.2% respectively.

China's August Trade Surplus
Another record.

There have been repeated warnings that the government’s 7.5% growth target for its trade sector for 2014 may not be achieved, despite assurances that GDP will expand by the projected 7.5%.

Compared with July, which showed a 15-month high across all sectors involved in exports, August’s data points to a slowdown.

Export data for China’s two largest markets were as follows:

  • United States: +11.4% in August compared to August 2013, and +12.3% in July compared to July 2013.
  • Europe: +12.1% in August versus August 2013, and +17% in July from July 2013.

Europe is a major exporter of goods and services to China. Purchases of European products in August declined to a 14-month low of 4.5% compared to August 2013.

US demand for goods made in China will probably remain strong in the months to come, partly driven by the launch of Apple’s iPhone 6. European demand is much more difficult to predict, given the economic impact of the political crisis in Ukraine.

China cannot rely on exports to remove the need for urgently-needed structural reforms, Andrew Polk, an economist at The Conference Board said in an interview with the Wall Street Journal. “The idea that an export recovery is going to buoy growth enough to give space for reform obviously doesn’t have any traction,” he said.

Germany posted record exports for July, and a record trade surplus.