China's trade performance disappoints in July

[BEIJING] China's economy, the world's second largest, struggled in July with a worse-than-expected trade performance as imports plunged 12.5 per cent year-on-year, Customs said Monday.

Imports fell to US$132.4 billion, customs data showed, as weaker global commodity prices and lacklustre domestic demand weighed on purchases.

The drop in imports was significantly larger than expectations for a 7.0 per cent fall, the median forecast in a survey of economists by Bloomberg News.

Exports also fell in US dollar terms, dropping 4.4 per cent to US$184.7 billion - below expectations of a 3.5 per cent decline.

As the world's biggest trader in goods, China is crucial to the global economy and its performance affects partners from Australia to Zambia, which have been battered by its slowing growth - while it faces headwinds itself in key developed markets.

Analysts described the July trade performance as disappointing.

"Signs of stronger manufacturing activity among many of China's key trading partners has so far failed to lift export growth," China economist for Capital Economics, Julian Evans-Pritchard, said in a research note.

"At the same time, the renewed fall in global commodity prices is dragging down import growth," he said.

July was the fourth month in a row that exports declined in dollar terms.

China's imports have been shrinking since late 2014 with global commodity prices hammered as the country's once blistering expansion lost steam, slowed down by manufacturing overcapacity, a slowing property market and mounting debt.

July saw their biggest monthly fall since February, when they lost 13.8 per cent.

"China's trade data was unimpressive in July," ANZ Banking Group said in a research note, which added the outlook for the second half of the year was "challenging".

"Over H2 2016, sluggish growth in Europe and Japan is likely to drag on China's exports. Brexit will further weigh on exports to the EU," it said, referring to Britain's vote to leave the European Union.

In the first seven months of the year, total trade volume with the EU - China's biggest trading partner - rose 1.8 per cent, Customs said in a statement.

Trade with Japan was up just 0.8 per cent, but it fell 4.8 per cent with the United States, data showed.

China is embroiled in rows over steel exports - it produces around half the world's output of the metal - with the EU and US accusing it of dumping. It exported 10.3 million tonnes of steel in July, Customs said, up 5.86 year-on-year but down 5.85 per cent on June.

The fall in exports in July came despite weakness in China's yuan currency - also known as the renminbi (RMB) - which has helped overseas sales by making Chinese goods cheaper.

"Yuan depreciation has helped China's exports to some degree," Citic Bank International chief economist Liao Qun told AFP.

Chinese officials deny the government is deliberately allowing the yuan to slide to boost exports, arguing economic fundamentals are responsible.

China's foreign exchange reserves, already the world's largest, stood at US$3.2 trillion in July, down by US$4.1 billion from June, showed official figures released on Sunday.

The world's number two economy grew 6.7 per cent in the second quarter of this year, the same as the first quarter, slowing from all of last year.

The economy expanded 6.9 per cent in 2015 - its weakest in a quarter of a century - and the government has targeted growth in a range of 6.5-7.0 per cent for this year.

Despite the weak trade performance, stock investors remained upbeat. The benchmark Shanghai stock index was up 0.26 per cent by noon on Monday.

AFP