China's Foreign Trade So Far So Good, but Prospects Cloudy Amid Global Economic Uncertainty

BEIJING, Aug. 11 (Xinhua) -- The trade surplus rose sharply to a record high of 31.48 billion U.S. dollars in July from June's 22.27 billion U.S. dollars and the 28.7 million U.S. dollars in the same period a year ago, the General Administration of Customs (GAC) said on its website.

July exports rose 20.4 percent year-on-year to reach 175.128 billion U.S. dollars, a record monthly high compared with 17.9 percent in June.

Imports quickened from June's 19.3 percent to 22.9 percent to 143.64 billion U.S. dollars.

The robust readings suggests both China's competitiveness in exports and domestic demand are in relatively good shape, Bank of America-Merrill Lynch economist Lu Ting said in an email to clients.

Exports to the EU and Japan rose to 22.3 percent and 27.2 percent year-on-year in July from 11.4 percent and 20 percent in June.

And exports to the United States expanded 9.5 percent, down slightly from 9.8 percent in June, but down significantly from 13.3 percent in the second quarter and 21.4 percent in the first quarter, which indicated weakness in the U.S. economy has been weighing on its imports from China, according to Lu.

However, external market instability would gradually be felt by Chinese exporters in the rest of the year, as the sovereign debt crisis in the EU and credit downgrade in the United States has generated more uncertainty about the recovery of the global economy, analysts said.

According to Lu's estimation, China's export and import growth will slow to 16 percent and 23 percent in the second half of this year from 24 percent and 27.6 percent in the first half.

Import growth will trend down on the back of declining commodity prices and soft landing of the domestic economy, he said.

Commenting on July's record high monthly trade surplus, Liu Ligang, director of economic research department of ANZ Greater China, said the strong data is a natural correction of the trade deficit registered in the first quarter.

As production accelerates and inventory decreases, the trade surplus is expected to keep growing for the rest of the year, Liu said.

Lu Ting estimated the trade surplus will increase to 97.2 billion U.S. dollars, up from 46 billion U.S. dollars in the first half.

However, the fast-growing stockpile complicates the dilemma faced by the Chinese government.

Trade surpluses increase domestic liquidity and add to inflation pressures. Yet, the faltering global financial market means China may be reluctant to further tighten as it could impact negatively on the country's growth.

Liu said a slightly stronger yuan would help China overcome the dilemma.

On Wednesday morning, yuan hit a record high of 6.4167 against the U.S. dollar.