China’s import growth fell sharply to its slowest pace in 20 months last month in further evidence of the broad impact of monetary tightening on the economy, while a wider trade surplus suggested capital inflows will remain a challenge for authorities.
The substantial drop in import growth last month, which decelerated to a 19.3 percent annual pace from May’s 28.4 percent, is bound to heighten investor concerns about how swiftly the world’s -second-largest economy is slowing.
However, coming a day after data showed that inflation last month hit a three-year peak, analysts took the jump in the trade surplus as a sign that China might have to raise rates further, both to rein in prices and to combat capital inflows.
Photo: AFP
“The trade surplus surged in June,” said Liu Li-gang (劉利剛), an economist at Australia and New Zealand Banking Group Ltd. “We would interpret this to mean the moderation in export and import growth is not big enough to prevent the government from tightening further.”
“The big trade surplus means PBOC [People’s Bank of China] will continue to experience large capital inflows. The PBOC will have to address this inflow problem, so it’s unlikely they will pause monetary policy,” Liu said.
A slew of indicators in the past few weeks have pointed to a moderation in the heady pace of China’s growth, from purchasing manager surveys of new orders to Taiwan’s exports to China.
However, the PBOC has made clear inflation remains a priority for policy. Most analysts agree the resultant growth from that policy mix will be slower than the near double-digit pace of the past few years, but there is little risk of a hard landing.
The government is due to announce second-quarter economic growth data on Wednesday.
“Imports were below expectations,” said David Cohen, an economist at Action Economics in Singapore. “We are perhaps seeing some reflection of loss of momentum in China’s growth. After all, there has been tightening in policy. The numbers are consistent with decelerating growth, with the soft landing that many people are looking for.”
Last week, the central bank raised interest rates for the third time this year, underlying the government’s confidence in the economy’s ability to cope with tighter monetary policy.
Yesterday’s data showed that exports last month rose 17.9 percent from a year ago, slowing from a 19.4 percent rise in May and pointing to the weakness in overseas demand that has seen exports and new orders soften across most of Asia.
Exports hit a record high of US$162 billion last month, while imports the last month were US$139.7 billion. That left the country with a trade surplus of US$22.3 billion last month, compared with US$13.1 billion in May.
The median forecast of economists polled by Reuters was for exports to rise 18.7 percent and imports to grow 25 percent, -resulting in a trade surplus of US$16.3 billion.
On a calendar-adjusted basis, exports expanded 16.4 percent last month from a year earlier, while imports jumped 19.2 percent, the customs agency said.
Exports rose 3.1 percent last month from May, while imports fell 3 percent month-on-month. On a calendar-adjusted basis, exports last month rose 4.2 percent from May, while imports fell 2.6 percent from May.
The surplus last month was the highest in seven months. China’s trade surpluses have fueled criticism from key trade partners who accuse Beijing of giving its exporters an unfair boost with a cheap currency.
Despite the latest data, China’s trade surplus is on track to narrow for a third straight year from last year’s US$183 billion as the government tries to rebalance the economy in favor of domestic consumption, cutting reliance on exports.
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