China: Exports suffered in July

China continues its transition from an economy driven mostly from manufacturing to an economy based on its domestic market. China’s economy is also a great barometer of the global economy and today’s China’s exports are a good illustration of it. The data have shown a decline in July way below consensus printing at 7.2% y/y versus 11% y/y expected. It is worth noting that there exists a strong seasonality of China’s exports which tend to slow down just after the summer before bouncing back towards the end of the year. This year, it seems that the slow down happens sooner than the years before.

Trade balance has increased in July above markets expectations at $46.7 billion vs $45 expected. This is mostly due to imports that keeps growing at a higher pace than exports. Imports came in at a strong 11% y/y in July, even though below expectations. Imports growth decelerates and we may believe that domestic demand is also cooling – slightly at the moment.

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Currency-wise the USDCNH is now trading at its lowest levels since October 2016 at 6.7 Yuan against a single dollar note. China’s falling exports are also the sign that the global outlook does not seem so promising and this validates the China’s transition. USDCNH is set to weaken again.