Chinese Exports Exceeded Expectations in July

Exports from China have been surprisingly strong in July, particularly to Europe, its biggest trading partner, reaching the highest level of the past one year.

But analysts warn, however, it is too early to ensure that Chinese exports will continue in the coming months, considering the budget problems of China’s major markets: Europe and the United States.

“The China trade continues to face great uncertainty,” said Nie Wen, an analyst at Hwabao Trust, in Shanghai. “Developed countries are forced to take austerity measures and emerging markets could tighten their policies as to tame inflation.”

Exports increased by 20.4% in July year on year, accelerating from 17.9% in June, according to customs figures. This is the strongest increase since April. Economists predicted an increase of 17.4%.

Imports increased by 22.9% year on year, almost under the consensus.

“Imports and exports should grow at a slower pace in the coming months,” said Li Xunlei, an economist at Guotai Junan Securities in Shanghai. “The turmoil in global financial markets could lead to a contraction in external demand.”

Other indicators released this week showed that inflation in China had reached highest since June 2008, three years ago. Some leaders, however, felt that the increase in retail prices had probably peaked.

But noting the subtle balance that Beijing must undertake to control both growth and inflation, the sharp rise in export sales in July boosted the Chinese trade surplus.

The surplus rose to $ 31.5 billion, its highest level since January 2009, after 22.3 billion in June, while economists on average expected 27.5 billion.

This could help to fuel price pressures in China and feed criticism from trading partners of Beijing. The Chinese government has been criticized for continuing to suppress the rise of the yuan to sell more abroad, claims that China has always denied.

As part of its policy to prevent the yuan appreciates only too quickly against the dollar, Beijing buys dollars from earnings of its foreign trade. But Beijing is investing more than six yuan in the Chinese banking system for every dollar it bought, adding to a glut of cash that fuels inflation.