China’s trade surplus hit a record high in June as exports rose and imports fell, exacerbating tensions with major trading partners such as the United States and the European Union.
Bloomberg reported that this development comes at a time when global economic dynamics are already fraught with challenges, raising concerns about potential trade wars and the sustainability of economic growth in China.
Exports rise, imports fall
In June, China’s exports rose to $308 billion, the highest level in nearly two years and a continuation of a three-month growth streak, according to Bloomberg.
Meanwhile, imports fell to $209 billion, meaning a record trade surplus of $99 billion for the period.
This major imbalance has alarmed China’s trading partners, with ongoing responses such as higher tariffs on Chinese imports, including electric cars.
“The surplus reflects China’s economic situation, with weak domestic demand and strong export-driven production capacity,” Zhiwei Zhang, president and chief economist at Benpoint Asset Management, told Bloomberg.
“Sustained strong exports pose a major risk to the Chinese economy in the second half of the year. The US economy is weakening, and trade conflicts are escalating,” Zhang added.
Bruce Pang: Part of the increase in exports is due to manufacturers’ orders being pre-loaded to avoid impending tariffs.
International reactions and potential conflicts
The growing trade imbalance has led to rising tensions, especially between the European Union and China.
This week, the European Union took new measures targeting Chinese imports, prompting Beijing to launch a retaliatory investigation into the EU’s trade practices, the agency said.
This mutual escalation has raised fears of an imminent trade war that could disrupt global markets.
“The record surplus could also provide some fuel for those who are quick to judge China’s excess manufacturing capacity and perceived dumping to boost trade,” said Bruce Pang, chief economist at Jones Lang LaSalle.
He added that part of the increase in exports is due to manufacturers’ orders being pre-loaded to avoid impending tariffs.
Implications and expectations
The economic landscape in China remains complex, according to Bloomberg, and while strong export numbers were a bright spot, weak domestic demand is still weighing heavily on the economy.
The Ministry of Commerce said newly used foreign direct investment in the first half of the year was the lowest since 2020, with foreign companies adding just 499 billion yuan ($69 billion) to their operations in China.
Chu said Eric Chu of Bloomberg Economics “Strong external demand and favorable base effects are likely to continue to support shipments in 3Q24. However, this will not put the recovery on a sound footing. The unexpected drop in June imports shows that domestic demand remains weak. To achieve the official 5% growth target, faster and bolder stimulus will be needed.”
No certainty in the future
Data due out on Monday is expected to show weak second-quarter growth, adding pressure on Chinese leaders to shore up confidence at an economic policy meeting. Still, expectations for a major policy shift by President Xi Jinping remain low, according to Bloomberg.
China’s trade surpluses with the European Union and the United States hit their highest levels since January and September 2023, respectively.
Imports from key partners such as Japan, the United States, Canada, the Association of Southeast Asian Nations, the European Union, Australia, Brazil and Russia fell, highlighting the broader challenges facing China’s trade relations.
In April, the World Trade Organization forecast a 2.6% increase in global merchandise trade this year, a slight improvement over the 2023 contraction but still below previous expectations, according to the same source.
