China trade balance shrinks more than expected in July as exports disappoint

Investing.com-- China’s trade balance shrank more than expected in July, hit by a smaller-than-expected increase in exports as European tariffs on the electric vehicle industry took hold, while imports shot past expectations. 

China’s trade balance showed a surplus of $84.65 billion, customs data showed on Wednesday. The reading was weaker than expectations for a surplus of $97.5 billion and fell from the $99.05 billion seen in the prior month. 

The reading was driven by a smaller than expected increase in exports following the imposition of higher trade tariffs on the EV sector in early-July. 

Exports grew 7% year-on-year in July, less than expectations for a rise of 9.7% and weaker than the 8.6% growth seen in the prior month. 

While the EV tariffs spurred some initial weakness in exports, their impact on China’s overall exports is still expected to be limited. But the country also has to contend with worsening demand in its biggest export destinations, as global economic growth cools.

A smaller trade surplus was also driven by an unexpected surge in imports, which grew 7.2% y-o-y in July, much more than expectations for a rise of 3.5% and recovering sharply after a 2.3% contraction in the prior month. 

The reading indicated that domestic demand remained resilient despite other signs of cooling economic growth. But whether the strong imports figure was a one-off reading or a sustained trend still remained to be seen.