Sell-Side Views On China Trade Figures

Nomura expects export weakness to persist into year end, while softer trade should also weigh on broader activity. TD states that the weaker export backdrop could leave the authorities more comfortably with softer CNY backdrop.

Nomura: "July trade data once again fell short of market expectations, particularly in terms of imports. Export growth in USD terms dropped to -14.5% y-o-y in July from -12.4% in June, while import growth fell notably to -12.4% from -6.8%. Both readings were worse than market expectations (-13.2% for exports and -5.6% for imports). The trade balance was the only positive print, rising to USD80bn in July from USD71bn in June, mainly because imports deteriorated more sharply than exports. These readings point to worsening growth prospects. A worsening export contraction means weaker production, while rapidly deteriorating imports reflects weaker demand within China. Looking ahead, we expect exports to contract at a similar scale until end-2023 and China’s growth to take more time to rebound, given the double-whammy of the collapsing property sector and contracting exports. Markets appear to have become too bullish over the past couple of weeks by overestimating Beijing’s policy support and underestimating the downward pressures."

TD: "Another weak set of China's trade numbers in July, extending the poor performance last month. Exports growth printed slightly weaker-than-expected, at -14.5% y/y (cons: -1.32%, TD: -14.8%, Jun: -12.4%) as weak global demand kept Chinese exports depressed. Exports to major trading partners such as US, EU and ASEAN all fell on a m/m basis while exports of key products such as integrated circuits, high-technology equipment and medical instruments also declined over the month. More importantly, imports growth surprised sharply to the downside at -12.4% y/y (cons: -5.6%, TD: -9.5%, June: -6.8%) as we expected. The sharp fall in the non-manufacturing July PMI hinted of a quick fade in optimism in the services/construction sector which was reflected in the poorer than expected imports outturn. Additionally, firms may be avoiding any ramp-up in activity as seen from the decline in commodity imports (volume terms) such as coal, copper, iron ore and crude. Taken together, today's July trade print cast doubt on the official 5% growth target in the absence of fiscal stimulus and is likely to add more pressure on the CNY, though officials may be more content with a weaker CNY for now to support exporters."