China's export growth slows

Containers been loaded on to a ship at the Qingdao port, in northeastern China's Shandong province on March 9, 2012.

Story highlights

  • Chinese export and import growth slowed markedly last month
  • Flashes warning signals about both the domestic and the global economy
  • Trade figures underlined China's sluggish start to the second half of the year
  • Exports rose 1% year on year in July, down from an 11.3% pace in June.

Chinese export and import growth slowed markedly last month, flashing warning signals about both the domestic and the global economy.

Coming on the heels of weak industrial production data for July, the trade figures underlined China's sluggish start to the second half of the year and were seen as making it more likely that the government would intensify its measures to stimulate growth.

Exports rose 1 per cent year on year in July, a six-month low and down from an 11.3 per cent pace in June. Well below expectations, the figure indicated flagging external demand.

Imports were up 4.7 per cent, dipping from June's 6.3 per cent pace and pointing to a slackening in China's appetite for commodities. China was left with a $25.1bn surplus, a two-month low.

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With the US economy struggling to gain traction and Europe slipping towards recession, China is the world's most important growth engine, but it has also been sputtering. Its 7.6 per cent annual expansion in the second quarter was its slowest since the peak of the global financial crisis three years ago.

After the weak factory data on Thursday, analysts said that Beijing would deploy both monetary easing and fiscal spending to prop up growth. The poor showing on exports also fuelled calls for the government to act on the trade front by letting the renminbi depreciate.

"The key problem now is that the renminbi's real effective exchange rate (as measured against a trade-weighted basket of currencies) is too high. It is suppressing exports," said Lu Zhengwei, an economist with Industrial Securities.

The renminbi has edged down nearly 1 per cent against the US dollar this year but it has risen in real terms because the dollar has done relatively well against many other currencies.

Should Beijing let the renminbi fall more steeply against the dollar, it could stoke a political dispute with the US. Complaints about China's trade prowess have already featured in the lead-up to the US presidential election later this year. Mitt Romney, the Republican candidate, has vowed that he would declare China a currency manipulator if elected.