China’s exports ride AI boom as domestic economy struggles
By Joe Cash and Yukun Zhang
BEIJING, July 14 (Reuters) – China’s exports rose in June, driven by chip orders that will fuel the global artificial intelligence boom and autos; As policymakers in the world’s No. 2 economy continue to grapple with how to boost domestic demand, manufacturers’ reliance on overseas buyers has deepened.
The stronger-than-expected trade performance puts China on track for a surplus of more than $1 trillion for the second year in a row, as factories keep up sales despite slowing growth in major economies and trade frictions with Washington.
Exports rose 27% in US dollar terms from a year earlier, their best performance in four months, customs data showed on Tuesday, beating May’s 19.4% increase and economists’ forecast for an 18.2% increase.
Imports rose 36%, compared with a five-year high of 27.4% in the previous month. Economists were predicting 24 percent growth for June.
“Continued export strength, driven mostly by AI, points to a better second half along with a more expansionary policy mix, stepped-up fiscal spending and moderate monetary easing, as well as an easing of the situation in the Middle East, which will benefit China through lower oil prices,” said Xu Tianchen, senior economist at the Economist Intelligence Unit in Beijing.
“But domestic demand remains hampered. Retail sales remain fairly flat and fixed asset investment was negative last month.”
Data showed that China’s monthly automobile exports exceeded 1 million for the first time in June; This risks increasing tensions with partners such as the European Union. Meanwhile, China has sold 32 billion integrated circuits to the world.
Chinese stocks rose following the data, with the blue-chip CSI300 gaining 2%.
China’s trade surplus increased from $105.4 billion to $125.6 billion in June compared to the previous month. Despite imports growing faster than exports for several consecutive months, the year-to-date trade deficit currently stands at $575.98 billion, compared to $585.96 billion last June.
With policymakers still unable to find a solution to the protracted real estate crisis that has weighed on domestic demand for several years, Chinese manufacturers appear to have few good options beyond selling abroad.
According to a recent report by consultancy Gavekal Dragonomics, the ratio of annual exports to total manufacturing sales reached 24 percent in the first four months of this year; This is the highest level since China’s accession to the World Trade Organization in 2001. While this rate was 18.3 percent in 2019, it increased to 22.3 percent last year.
