China may need to lift private consumption, says ANZ Bank

 BEIJING - China’s trade surplus reached a six-month high in June, thanks to a significant slowdown in import growth – to 14.1% y/y from 26.0% in May. Growth in imports of mechanical and electrical products, which account for more than 40% of China’s total imports, slowed to 5.0% y/y in June compared with 23.6% in May. This reduced its contribution to overall import growth to 2.2% in June from 10.7% the previous month.

Imports of high-tech products slowed to 9.4% y/y in June, ending a period of growth above 20% in the previous three months.

However, it is unlikely that China will continue to enjoy a high trade surplus in H2, considering the impact of ongoing trade tensions, says ANZ Bank in a research note.

“The trade surplus jumped to USD41.6bn in June from USD24.2bn prior,” ANZ says. “However, such a trend is unsustainable, in our view.

“China’s exports are facing higher downside risks in H2 as the US started to impose tariffs on Chinese products from July 6 with the possibility of expanding the tariff list in the future. This could cap China’s export growth in upcoming quarters.”

The ANZ note says Chinese policymakers may be under pressure to boost domestic demand, which could drive import growth in H2.

“The boost in domestic demand will help offset the potential negative impact of US-China trade tensions, which show few signs of ending soon,” it says.

“On top of their previous commitment to widen the scope of imports and to reduce thousands of import tariffs, Chinese policymakers may also consider measures to boost private consumption in the near future, with investment another likely option.

“All these will prevent China’s import growth from a rapid slowdown, depleting the trade surplus.” www.live.anz.com (ATI).