China's July Trade Surplus Growth Surprises
China’s July trade surplus of $31.5 billion was the biggest in two and a half years, surprising economists who had expected an export slump amid debt crises in Europe and the U.S.
July exports surged 20.4 percent from a year ago to a record high $175.13 billion, while imports jumped 22.9 percent to $143.64 billion, according to the General Administration of Customs (GAC). July’s export growth was a sharp rebound from June. Export growth had declined from 37.7 percent in January to 17.9 percent in June.
Recovery of Japan’s production and a surge in European demand were credited with much of the months high exports. Exports to the EU rose 22.3 percent in July, from an 11.4 percent rise in June. Exports to Japan soared 27.2 percent, up from 20 percent in June. Export growth to the U.S. slowed slightly to 9.5 percent from 9.8 percent in June.
Export growth was led by labor-intensive industries like garments (27.1%) and textiles (21%). Exports of mechanical, electrical and high-tech goods grew at a slower pace of about 15 percent.
Exports are expected to surge in the coming quarter due to demand from retailers stocking up ahead of the Christmas season, according to trade officials and industry experts. However, U.S. and European debt fears remain an X-factor in the coming few months.
But long term overseas demand may suffer due to the downgrading of the U.S. sovereign credit rating by Standard & Poor’s and signs that the debt crisis may be spreading to Italy and Spain, according to analysts.
The other dark cloud hanging over manufacturers and exporters is the rising costs of labor and raw materials, coupled with a rising yuan and weakening demand.
Raw material costs are expected to surge due to China’s high inflation rate which hit 6.5 percent in July, the highest in three years.
Also, in the long term import growth is likely to continue outpacing export growth due to the lowering of import duties for major commodities beginning July 1 combined with the continuing rapid growth of China’s domestic economy and demand.