China: July trade growth more resilient than expected – Nomura

Analysts at Nomura note that China’s export growth rose to a stronger-than-expected 12.2% y-o-y in July from 11.2% in June (Consensus and Nomura: 10.0%), while import growth surprised significantly on the upside, jumping 27.3% y-o-y from 14.1% in June (Consensus: 16.5%; Nomura: 21.0%).

Key Quotes

“Despite strong growth in July, with the US threatening to hike its proposed import tariff to 25% from 10% on another USD200bn of Chinese exports, trade tensions have escalated. Combined with the lagged effect from RMB appreciation in 2017, this w ill weigh on China’s export outlook in the near term. Import growth can be expected to slow as well due to weakening domestic demand but at a more gradual pace, given China’s increasing reliance on primary products.”

“With external challenges rising, we believe the government will focus more on domestic demand to stabilise economic growth. Beijing has shifted significantly to an easing bias and already ratcheted up its fiscal stimulus (e.g., more infrastructure investment projects will get underway in the coming months). That said, we believe authorities will be restrained in trying to resolve the trade conflict with the US and are looking for ways to support export growth given exports still comprise a sizable portion of the economy (USD1844bn in 2017).”