Weak Chinese Trade Data Confirms Global Slowdown, Imports Tumble

While central banks continue to "print" liquidity, now at a pace of nearly $200 billion per month, they are unable to print trade, perhaps the single best indicator of deteriorating global economic conditions. The latest confirmation came overnight from China, which reported more disappointing trade data for the month of July, as exports and especially imports fell more than expected in July in a rocky start to Q3, suggesting that China's measures have failed to generate a substantial rebound in the economy, and pointing to further and accelerating weakness in global demand, explaining the recent scramble by central banks to unleash even more monetary easing.

The July trade data summary :

• Exports: -4.4% yoy in July vs consensus: -3.5%. June: -4.9% yoy.
• Imports: -12.5% yoy in July vs consensus: -7.0%. June: -8.4% yoy.
• Trade balance: US$52.3bn NSA (GS: US$49.1bn, consensus: US$47.3bn). June: US$47.9bn.

Economists polled by Reuters had expected trade to remain weak but show some signs of moderating as factories gear up for orders heading into the peak year-end shopping season.

That did not happen as imports fell 12.5 percent from a year earlier, the biggest decline since February and suggesting China's domestic demand may be faltering despite a flurry of measures to stimulate economic growth. "I think (the drop in imports) is mainly from the demand side," said Ma Xiaoping, an economist at HSBC in Beijing, quoted by Reuters. Worse, according to Ma government efforts to cut overcapacity could
produce an even bigger hit to demand in the next few quarters.

Also notable is the slowdown in Chinese crude oil demand, as China oil imports fell to a 6-month low: China imported 31.07m mt of crude last month, the General Administration of Customs in Beijing says on website. That’s equivalent to 7.35m b/d, lowest since January.

On the other side of the ledger , exports fell 4.4 percent on-year, the General Administration of Customs said on Monday, while adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of $52.31 billion in July, the biggest since January, versus June's $48.11 billion.While oil imports may be declining, oil product exports hit 4.57 million metric tons with net oil product exports at record 2.49metric tons, as China continues to flood the world with diesel and gasoline exports.

For the January to July period, China's exports fell 7.4 percent, while imports fell 10.5 percent, roughly on pace with last year's 8 percent decline. China's imports have now declined for 21 straight months, while exports have fallen for 12 of 13 months, helping to drag economic growth to its slowest in a quarter of a century.

"Signs of stronger manufacturing activity among many of China's key trading partners has so far failed to lift export growth," Capital Economics' China economist Julian Evans-Pritchard said in a note. "The country's export growth is likely to remain subdued for some time."

China's exports underwhelmed despite still-strong shipments of steel and oil products, with the latter hitting a record. China has come under fire from trading partners accusing it of dumping its excess industrial capacity in global markets.

Exports to the United States – China's top market – fell 2.0% in July, while shipments to the European Union – its second biggest market - fell 3.2%. While the decline in shipments to the EU actually moderated slightly from June, economists at ANZ expect Brexit will weigh further on China's exports to Europe in coming months. Meanwhile, China's imports from the U.S. fell 23.2% in July from a year ago, versus a 12.7 percent decline in June. A more than 6% slide in the yuan against the dollar over the past year appears to have done little to help China's exporters in the face of stubbornly soft global demand and weak commodity prices.

Iron ore imports rose 8.1 percent by volume in the first seven months of the year, but factory activity surveys last week showed domestic and export orders cooled in July, while heavy flooding in some areas disrupted business.

While there have been mixed signals on whether China is ready to cut interest rates or banks' reserve requirements again this year, most analysts agree the focus should be on structural reforms. "In the short term I think a lot of changes would depend on the government's structural reform of state-owned companies," said HSBC's Ma.

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Finally, here is Goldman's take:

Both export and import data came in below expectations. Exports by destination data showed mixed performance in July. Export growth to the US was -2.0% in July, vs -10.5% yoy in June. Exports to the EU fell 3.2% yoy in July, vs -3.6% yoy in June. Exports to Japan were down 5.2% in July, vs -3.0% yoy in June. Exports to ASEAN fell 3.9% yoy in July vs -4.5% yoy in June, and exports to Hong Kong fell 9.3% yoy in July, from -7.1% yoy in June.

Import growth in key categories moderated in volume terms. In volume terms, iron ore import volume was +2.7% yoy in July vs +8.9% yoy in June. Crude oil import growth was +1.2% yoy vs +3.8% yoy in June. Unwrought copper import growth was +3.4% yoy vs +20.3% yoy in June. Steel product imports were up 7.7% yoy vs -2.2% yoy in June. In value terms, imports of iron ore were down 8.8% yoy vs +8.2% yoy in June. Crude oil imports growth was -23.7% yoy vs -26.4% yoy in June. Refined petroleum product imports fell 30.2% yoy vs -38.1% yoy in June. Steel product imports were down 11.1% yoy vs -11.4% yoy in June. Unwrought copper import growth was -13.6% yoy vs -4.2% yoy in June.

Export growth slowed in July, on the back of a less supportive external environment. Import growth fell more than exports and was weaker than expectations, likely reflecting a softening of domestic demand growth in July. Data on July trade prices have not been released. Judging from the information on imports of key commodities, moderation in both volume and prices probably contributed to the lower headline import growth. The trade surplus increased due to the relatively larger decline in imports, helping to offset capital outflows (though FX flows were still likely negative in July).