China posts record trade surplus, but domestic economy may lag

China's buoyant exports pushed its trade surplus to a record in July, fuelling optimism global demand will help counter pressure on the domestic economy from a weakening property sector.
While manufacturing appears to have picked up in the world's second-largest economy, the latest unexpected weakness in the services sector has renewed concerns about the growth outlook. The weak housing market remains China's biggest risk, posing a drag on the broader economy and investor confidence.
Recovering global demand may not be enough to bolster a weak internal economy weighed by a cooling property sector and Beijing's anti-corruption drive, suggesting policy support will likely continue to keep economic growth on track, analysts say.
Exports in July jumped 14.5 per cent from a year earlier - the fastest pace in 15 months, the General Administration of Customs said last week, doubling from 7.2 per cent in June and roundly beating market expectations. Exports were stronger than expected even after pricing in inflated export data in early 2013, when firms falsified invoices to skirt capital curbs.
Some analysts attributed the export spurt to delayed shipments caused by recent volatility in the yuan which may not sustain. Meanwhile, imports fell 1.6 per cent versus a rise of 5.5 per cent in June, leaving the country with a record trade surplus of $47.3 billion for the month.
"The (export) data indicates very strong demand externally and less need for a weak currency," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.
"However, imports contracted 1.6 per cent year-on-year, indicating soft domestic demand and a downward pressure on growth. Policymakers are likely to do more to support the domestic economy."
A Reuters poll had predicted a 7.5 per cent rise in exports, a 3.0 per cent increase in imports and a trade surplus of $27 billion.
Financial markets firmed on the data with the Shanghai Composite Index rebounding. It rose 0.25 per cent by midday from its intraday low, when it was down 0.32 per cent.
After a weak start this year, China's exports have shown signs of improvement helped by stronger global growth as well as supportive domestic policies and the effects of a weaker yuan.
Exports to the United States, China's top export destination, rose 12.3 per cent in June, quickening from a rise of 7.5 per cent in June, while those to the European Union, the second-biggest market, grew 17 per cent, compared with 13.1 per cent in June.
Exports to ASEAN countries rose 11.9 per cent in July, accelerating from 9.7 per cent in June, the customs data showed.
Customs spokesman Zheng Yuesheng told state television that China exports are likely to stay strong in the coming months.
"The external demand is improving as a recovery in major developed countries underpins the global economy," he said.
Imports from China's largest source for resources, Australia, dropped 5.7 per cent, partly due to softer commodity prices but the fall adds to questions over the health of domestic demand.
Some analysts attributed weak imports to the crackdown on commodity financing following the Qingdao port fraud probe.
Combined exports and imports grew 2.0 per cent in the first seven months from a year earlier, trailing far behind the government's full-year target of 7.5 per cent.
The record trade surplus and pressure from capital inflows were seen renewing pressure on the yuan. The currency is poised for its third consecutive day of gains as the central bank signaled it was comfortable with stronger levels as the economy was improving.
"With Chinese economic activity improving, we believe that there is scope for RMB to further appreciate, driven by conversion of onshore FX deposits and increased foreign portfolio inflows," analysts at ANZ said in a note.
That could create a fresh headache for China's central bank, which intervened to weaken the currency earlier this year when it punished speculators betting on one-way yuan appreciation.
Chinese leaders have pledged to maintain pro-growth policies to help achieve the annual growth target of 7.5 per cent.
The government unveiled a burst of "targeted" policy stimulus since April, including cutting reserve requirements for some banks, hastening construction of railways and public housing and allowing local governments to loosen property curbs.
The Politburo, a top decision-making body of the ruling Communist Party, said last month that China must maintain a "certain speed" in its development over the long term to help resolve problems in the economy
The government is due to release inflation data on Saturday, and industrial output, retail sales and fixed-asset investment on Aug. 13. New loan and money supply data will be issued between Aug. 10-15.
Meanwhile Josh Noble of FT Syndication Service in Hong Kong writes: Corporate China has already bought the cinemas and financed the films. Now it is moving into the heart of movieland by buying up one of Los Angeles' most sought-after locations.
Wanda, the Dalian-based owner of US cinema chain AMC and China's biggest commercial developer by sales, said last week it had won the battle for a plot of land at 9900 Wilshire Boulevard in Beverly Hills.
It plans to invest $1.2bn to build a mixed-use development, which will include luxury apartments and office space targeting the entertainment industry.
"The Los Angeles project is expected to aid in China's entry into Hollywood's film industry and generally promote Chinese culture abroad," Wanda said.
The company said it hoped the LA project would help it to "leverage on Hollywood's solid film industry" to support its own studio project in the northeastern Chinese city of Qingdao, which was launched last year with investment of more than $8bn.
Wanda bought AMC, the largest chain of cinemas in the US, two years ago in a $2.6bn deal.
Wanda's newly-acquired plot is in a prime spot - overlooking the Beverly Hills golf course, close to the Beverly Hilton and Peninsula hotels and a 10-minute walk to the exclusive shopping strip that is Rodeo Drive. Other nearby attractions include the UCLA campus, the Los Angeles Country Club and the Playboy Mansion.
The deal marks the intersection of two major cross-border trends - the march overseas of China's real estate companies, and the growing ties between the Chinese and US film industries.
China is now the world's second largest box office market, making it a vital source of revenue for Hollywood's film industry. The country is adding new screens at a rate of 10-13 a day, and is expected to overtake the US market by 2020.
That has driven investment in both directions. US studios have launched a number of China-centric productions such as Iron Man 3 and Transformers: Age of Extinction, and set up joint ventures with local film companies. Chinese actors, advertisers and locations are becoming more prominent in English language films.
Alibaba, the ecommerce company, recently teamed up with Lions Gate Entertainment to offer subscription TV to Chinese customers.
Meanwhile, Chinese property developers have increasingly looked abroad for growth as the domestic property market has matured and slowed. Over the past few years, they have made billions of dollars of investments in cities around the world - from London to Sydney and San Francisco.
Chinese investment into overseas real estate rose 17 per cent in the first half of this year to reach $5.4bn, according to figures from JLL.
Work began earlier this year on The Metropolis, a $1bn office tower in downtown LA being built by Shanghai-based Greenland, the company also leading the multibillion-dollar regeneration project of Brooklyn's Atlantic Yards.
Developers have also tried to tap into demand for property from Chinese citizens moving, working or investing overseas. Vanke, China's top residential builder by sales, has started construction of two luxury housing blocks in San Francisco.