China’s export levels were still extremely strong last month. The strength came as the world’s economy seems on the brink of a new recession.
The People’s Republic said that its trade surplus rose to $31.5 billion in July. Bloomberg reports that exports reached a record level. The surplus was the highest in two years. The news agency wrote that “Exports were $175.1 billion and imports were $143.6 billion. Import growth compared with a median 22 percent estimate and a 19.3 percent increase the previous month. The export gain compared with a 17.9 percent gain in June. ”
It is a puzzle as to where the demand comes from. And it is unlikely that demand can be sustained. July exports may have been for orders that were made from around the world several months ago. The slowdown of the U.S. and EU economies almost certainly will cut future orders by a substantial amount.
The numbers are a mixed blessing for China. Its factories have continued to run at high levels of production, obviously. This has helped push inflation higher as the costs of raw materials like agricultural commodities and oil have risen. That in turn has fueled inflation, which reached an unexpectedly high 6.5% last month. Production at current levels also makes it likely that China’s middle class will grow and prosper. Many are employed by manufacturing firms. Part of the demand for China’s imports is due to strong consumer spending, which did not exist a decade ago. But this demand is yet another engine of inflation.
Overseas demand will almost certainly slacken during the rest of they year. This will cause a drop in the overheated demand for consumer goods that has increased the cost of living in the People’s Republic. China’s own economy is likely to slow. That is a two-edged sword. Chinese consumers will spend less for products. Those consumers are also more likely to go without wage increases, and perhaps jobs.
China’s trade surplus for July is an outlier. The days of record exports are over.
Douglas A. McIntyre
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