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Published On: Fri, Aug 8th, 2014

China’s economy sees record trade surplus due to strong exports

China reports a record surge in exports; policymakers hopeful that global demand will aid the recovery of the country’s weak housing market and services sector.

China reports a record surge in exports; policymakers hopeful that global demand will aid the recovery of the country’s weak housing market and services sector.

China’s economy saw a record trade surplus in July, thanks to buoyant exports, boosting optimism that the vast global demand will help to deal with the pressure the country’s economy is experiencing, owing to the weakening property sector.

Manufacturing is rising in China, but the poorly performing services sector is the reason for new concerns about economy growth. The highest risk is in the housing market whose weakness contributes to an economy lag and diminishes investors’ confidence. It is likely that policy accommodation will continue to enable economic growth to stay on track.

There was a spike in July exports, 14.5 percent compared to a year earlier, the fastest in 15 months, and double June’s 7.2 percent. Some analysts explained the spike by delayed shipments due to the recent instability of the yuan. Imports declined by 1.6 percent, after a June rise of 5.5 percent. The country obtained a record trade surplus for the month, amounting to $47.3 billion.

The data is indicative of strong external demand, and of lesser need for a weak currency. But imports data, which show a shrinking of 1.6 percent, are a sign of weak domestic demand and thus pressure on economic activity.

By midday, the Shanghai Composite Index rebounded by 0.25 percent from its intraday low.

Although the start of the year was weak for China, its exports have started to improve boosted by stronger global growth, supporting domestic policies, and by the impact of the weaker yuan. For China’s top destination for exports, the US, there was a 12.3 percent export rise in June, up from 7.5 percent for June. The increase in exports for the EU, the second-biggest recipient, is 17 percent, up from 13.1 percent in June. An 11.9 percent rise in exports to ASEAN countries showed acceleration from the June figure of 9.7 percent.

As the Customs spokesman, Zheng Yuesheng, indicated, China exports are likely to remain strong in the next months, as external demand is on the rise boosted by economic recovery in major developed countries.

Imports from Australia, China’s largest resources source, declined by 5.7 percent, again raising the question of the state of domestic demand.

The yuan is under pressure by record trade surplus and capital inflows. The Central Bank showed its willingness to accept slightly higher levels, with improving economy. The bank intervened to weaken the yuan early in the year, thus punishing speculators betting on one way appreciation.

Chinese leaders intend to support pro-growth policies toreach the 7.5 percent annual growth target, shrinking reserve requirements for certain banks, speeding railway building and public housing, and enabling local authorities to relax property restraints.

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