China trade picture improves, but data underwhelm

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China released improved trade data that missed expectations on Thursday, figures that suggest external demand remains weak and domestic recovery fragile, analysts say.

The country's exports rose 7.2 percent from the year ago period, lower than the 10.6 percent rise predicted by a Reuters poll and after gaining 7 percent in May.

Imports climbed an annual 5.5 percent, versus Reuters' forecast for a 5.8 percent rise but reversing a 1.6 percent contraction in May.

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That brings trade balance to a surplus of $31.6 billion, compared with $35.92 billion logged in May.

"June export growth was somewhat disappointing given that most had expected a weak base for comparison to push it into double digit territory. That said, it remains stronger than import growth, which continues to be affected by the slowdown in the property sector," Julian Evans-Pritchard, China economist with Capital Economics, said it a note.

The Australia dollar eased following the news, while most Asian stocks gave up earlier gains while Japan's Nikkei extended losses.

China's exports gained traction in recent months, helped by an improving U.S. economy and as the government took measures to aid exporters, including providing more tax breaks, credit insurance and currency hedging options.

But imports have remained weak on sluggish demand.

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"We think the downside surprise in June export growth suggests a softer-than-expected pickup in China's external demand, while the uptick in import growth points to a modest recovery in domestic demand," said Jian Chang, analyst with Barclays.

Still positive on Chinese equities: Economist
Still positive on Chinese equities: Economist

"We think this has important implications for the policy outlook, given that weak trade growth, in our view, will make the authorities more willing to lean towards the easing side in the third quarter," he added.

Beijing has introduced a drip-feed of stimulus measures in recent months, in an attempt to reboot the economy that has slowed in recent years.

As a result, recent Chinese economic data from manufacturing to industrial output and retail sales have showed improvement, as the targeted measures, known as "mini stimulus" worked their magic.

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"If you look at the recent data from China, we've seen slightly better data after the very poor first quarter GDP where the economy saw 7.4 percent growth. I think the Chinese government's minor stimulus measures have been helping the economy so the economy is probably going to grow slightly more than 7.4 percent next quarter," said Vasu Menon, president of wealth management Singapore at OCBC Bank.

According to Capital Economics' Evans-Pritchard, exports will remain strong going forward, but imports weak, keeping trade balance firmly in the surplus.

"Improving conditions in developed markets mean that we expect the export growth to remain healthy going forward, despite today's disappointing data. In contrast, we expect import growth to drop further, given our view that cooling investment growth will weigh on commodity imports over the next couple of years," he said.

"As a result, China is likely to continue to post large trade surpluses," Evans-Pritchard added.