A flurry of data in coming weeks should show steady growth in China in July, though the potential for increased trade friction with the United States poses a risk to the world’s second-largest economy as it navigates a tighter policy environment. China is expected to report another strong month of exports in July, according to a Reuters poll of analysts, which could play into increasing rhetoric from Washington that China unfairly benefits in the trade relationship. China’s exports are seen rising 10.9 percent year-on-year in July, according to a median estimate from a poll of analysts, which would be down only slightly from June’s robust 11.3 percent growth, while imports are expected to increase 16.6 percent. China’s trade surplus in July was tipped at $46.08 billion, which would be the second highest this year, though it had shrunk to $185 billion in the first half of this year from $257.1 billion in the same period in 2016 as imports picked up. But the surplus with the United States, China’s largest export market, actually rose 6.5 percent in the first half to $117.5 billion, giving grist to U.S. President Donald Trump’s frequent arguments that the trade balance between the two nation hurts the U.S. economy. Indeed, American appetite for Chinese goods appear to have only increased over the years. The surplus with the U.S. accounted for 64 percent of China’s total surplus in the first half, compared to 43 percent in the year-ago period, according to China customs data.
US-China trade tensions
The issue has resurfaced over the past week as a bipartisan chorus has risen urging Trump to stand up to China as he prepares to launch an inquiry into Beijing’s intellectual property and trade practices in coming days. Tensions between Washington and Beijing have escalated in recent months as Trump has pressed China to cut steel production to ease global oversupply and rein in North Korea’s missile program. Trump tweeted on Saturday after the latest North Korea missile test that he was “very disappointed” in China and that Beijing profits from U.S. trade but had done “nothing” for the United States with regards to North Korea, something he would not allow to continue. “We see a bumpy road ahead for the trade relationship between the two countries”, said Yang Zhao, Nomura’s chief China economist. “But it is unlikely that the two nations will enter a true trade war.” Zhao said that part of the reason for China’s bigger surplus with the U.S. this year is better performance of the world’s no. 1 economy. China is set to publish trade data on Tuesday. China’s economy grew a faster-than-expected 6.9 percent in the first half, with net exports a positive contributor after being a drag on growth for two years.
Solid July despite financial crackdown?
Any slowdown in China’s exports could present a challenge to the country’s policymakers as a rebound in shipments abroad has helped stabilise economic growth amid a government crackdown on the property market and an overleveraged financial system. The crackdown has seen a broad tightening in financial conditions, with higher borrowing costs seen cooling growth over coming months. But official and private purchasing manager surveys this week pointed to solid activity in the manufacturing sector and slightly slower growth in the services sector. Other key data to be released over the next two weeks are expected to show economic growth remained solid in July, almost on par with June. Growth in fixed asset investment is expected to have been unchanged from June at 8.6 percent, while retail sales growth may have moderated slightly to 10.8 percent from 11.0 percent a month earlier, analysts said. Inflation is expected to have stayed muted last month, with the consumer price index (CPI) forecast to be unchanged from 1.5 percent in June. Producer prices are also seen steady from June’s 5.5 percent rise.
Industrial output, which increased by an unexpectedly high 7.6 percent in June, is forecast to ease off slightly to 7.2 percent growth in July. Inflation data will be published on Wednesday and fixed asset investment, retail and industrial output will be published on August 14. As China continues with an effort to reduce financial leverage in its highly indebted economy, money supply growth is expected to have remained at a record low of 9.4 percent in July. Loan data will also be closely watched for signs of whether the economy continued to build up more debt, amid signs that banks have shifted more credit back onto their books in response to the shadow financing clamp-down. Bank lending probably declined to 800 billion yuan in July after lenders extended a greater-than-expected 1.54 trillion yuan ($229.04 billion) in loans in June. That would be the lowest amount since November as regulators call on banks to take a cautious approach to credit amid fast-rising mortgage lending. Analysts also expect China’s foreign currency reserves, the largest in the world, to have increased slightly to $3.069 trillion in July from $3.057 trillion last month. China is set to publish foreign reserves data on Monday, while money supply and bank lending is expected anytime from August 10-15.