China Trade Data For June Sharply Below Expectations, Underlines Concerns Of Economic Slowdown

Growth in China's exports fell in June marking the first decline in 18 months while imports too fell steeply, missing expectations by a considerable margin, according to data released early on Monday, and underscoring concerns of a slowdown in the world’s second-largest economy.

Data released by the Chinese government showed exports were down 3.1 percent from a year earlier and imports were down 0.7 percent. In contrast, economists had expected exports to have grown 4.0 percent and imports to have risen 8.0 percent in June.

"The surprisingly weak June exports show China's economy is facing increasing downward pressure on lackluster external demand," Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai, told Reuters.

The steep fall in the trade data is attributed to weak demand in foreign markets such as the U.S. and euro zone countries, and a crack down by Chinese authorities on the use of fake export shipment documents for speculative capital gains by the country's exporters.

China's exports to the U.S., its biggest export market, fell 5.4 percent in June from a year earlier, while exports to the European Union dropped 8.3 percent.

"Exports are facing challenges in the second half of this year. The appreciation of U.S. dollar and the Chinese government's recent crackdown on speculative trade activities also put pressure on exports," Li said.

In May, exports recorded a year-on-year gain of 13.5 percent, which economists believe was due to fake invoicing by exporters. The steep fall in June, however, is in stark contrast to estimates, which had accounted for a decline in fake invoicing following the government's crackdown on the practice.

The country’s trade surplus contracted by 12.4 percent compared with a year earlier to $27.1 billion and was in line with the expectations of economists.

Recent efforts by China’s central bank to rein in credit-fueled growth and the government’s attempts to guide the economy to a domestic-consumption oriented model also has contributed to the recent slowdown in the economy.

However, despite slowing growth and calls from the industry and markets to ease monetary policy, the new leadership, which took power last year has been reluctant to provide monetary stimulus.

The ruling party has maintained that the country’s current slowdown would be tolerated in exchange for higher-quality growth over the long term. The current GDP growth rate at 7.7 percent is in line with the government’s target of 7.5 percent, which is almost half of the country’s 14.2 percent growth rate seen in 2007.

The new trade data follows a slew of disappointing economic data that have pointed toward weakness in China’s economy.

Both of China’s manufacturing PMIs published Monday came in below May levels, pointing to lackluster growth in the second quarter. The official PMI dropped to its lowest level in nine months in June. And, the private measure, known as the HSBC/Markit Purchasing Managers’ Index, fell to 48.2 last month, from 49.2 in May. Readings below 50 indicate a shrinking in factory activity.

Asian markets, while still in positive territory, retreated from highs seen in previous sessions, following the release of China's trade data.