China posts record trade surplus, but domestic economy may lag

Fri Aug 8, 2014 2:56am EDT
 
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By Kevin Yao and Xiaoyi Shao

BEIJING (Reuters) - China's buoyant exports pushed its trade surplus to a record in July, fuelling optimism global demand will help counter pressure on the domestic economy from a weakening property sector.

While manufacturing appears to have picked up in the world's second-largest economy, unexpected weakness in the services sector this week has renewed concerns about the growth outlook. The weak housing market remains China's biggest risk, posing a drag on the broader economy and investor confidence.

Recovering global demand may not be enough to bolster a weak internal economy weighed by a cooling property sector and Beijing's anti-corruption drive, suggesting policy support will likely continue to keep economic growth on track, analysts say.

Exports in July jumped 14.5 percent from a year earlier - the fastest pace in 15 months, the General Administration of Customs said on Friday, doubling from 7.2 percent in June and roundly beating market expectations. Exports were stronger than expected even after pricing in inflated export data in early 2013, when firms falsified invoices to skirt capital curbs.

Some analysts attributed the export spurt to delayed shipments caused by recent volatility in the yuan which may not sustain. Meanwhile, imports fell 1.6 percent versus a rise of 5.5 percent in June, leaving the country with a record trade surplus of $47.3 billion for the month.

"The (export) data indicates very strong demand externally and less need for a weak currency," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.

"However, imports contracted 1.6 percent year-on-year, indicating soft domestic demand and a downward pressure on growth. Policymakers are likely to do more to support the domestic economy."

A Reuters poll had predicted a 7.5 percent rise in exports, a 3 percent increase in imports and a trade surplus of $27 billion.   Continued...

 
Trucks drive past piles of shipping containers at the Qingdao port in Qingdao, Shandong province June 8, 2014.  REUTERS/China Stringer Network