China Trade Balance Contracts

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China Trade Balance Contracts

China Trade Balance Contracts In July

In the month of July, a contraction was noticed in China's trade balance. The reason for this was slow growth in exports as Europe has imposed tariffs on the EV industry. China is among the top exporters of EV vehicles; the EU tariffs led to softer exports in July.

Overall, a $84.65 billion surplus was shown in the trade balance of China for July. This reading was lower than the expectations of a $97.5 billion surplus. Also, the July's reading was below the $99.05 billion surplus seen in June 2024.

China'S Exports Grew By 7.7% Y/Y.

The growth of exports was recorded at 7% y/y during July, lower than the expectations of 9.7%. Also, the prior month's reading was 8.6%, which means July was not so good for China's trade balance.

The EV tariffs are expected to cause some weakness in China's exports in the short term. However, China's export sector is very diversified so the impact will be limited. But, what's more troubling is the slowdown in the global economy as it will lead to slower demand for China's products and services.

Another factor that shrunk the trade surplus was a surge in imports, which increased by 7.2% y/y in June. What's surprising is that the market participants were only forecasting a 3.5% increase. However, the reading showed a sharp recovery, given that July's reading showed a 2.3% contraction.

The reading also showed resilience in the domestic demand even though there are many signs of a cooldown in economic growth.

Now, it remains to be seen whether the increase in the imports was a one-off event or it would be replicated in the August and September readings.

The reading has made one thing clear; China's economic engine has met some roadblocks due to weaker overseas and local demand. Even if China could correct the problems at home, it will not be able to do much about the global economy.

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