Watch Out for a Swelling Wave of Exports From China to the World

BEIJING (TheStreet) -- China’s record, $47 billion trade surplus in July was neither unintended nor a flash in the pan.

That’s a key take-away from several Chinese securities analyst reports released Monday -- and a warning to American investors whose stocks are sensitive to fluctuations in U.S.-China trade.

What the government last week said was a 14.5% surge in China’s exports from July 2013 to nearly $213 billion last month signaled a boom in shipments to the U.S., Europe and the rest of Asia that’s likely to grow through year’s end. Imports, meanwhile, fell 1.6% in July to $166 billion.

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Shenyin Wanguo Securities predicted “the export situation will be better in the second half than the first half.” HuaAn Securities observed “an economic recovery in the developed world is generating substantial opportunities for Chinese exports.”

Ping An Securities analysts wrote that “overall, we believe that exports in the second half will be better than the first half.” Anxin Securities predicted that “the global economic recovery will continue,” and thus “China's export growth is expected to be maintained at a level near 10%” through the second half.

The export push is being encouraged by the government via adjustments to taxes, customs regulations and foreign exchange rates that started in the second quarter, analysts said. The government is also trying to boost the domestic economy with a “mini-stimulus” program that includes infrastructure spending and easier credit at state banks.

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Hongyuan Securities pinned the “steady growth in foreign trade” and “a positive effect on exports” to measures implemented since April 1 by “the State Council, the People’s Bank of China, the State Administration of Taxation and other relevant ministries.”

Founder Securities analysts credited President Xi Jinping for boosting overseas sales of Chinese goods during his recent visits to Latin America and South Korea. Talks in July on a proposed free trade agreement between China and South Korea contributed to a 32% increase in exports to the smaller country in July, the report said.

What’s inside all of those shipping containers sailing from Chinese ports? “Labor-intensive goods” contributed significantly to the latest jump in exports, according to Founder Securities. “Footwear, toys, textiles and garments.” Ping An also cited a “sharp” uptick in “labor-intensive product exports.”

Also higher were exports tied to the “processing trade” -- goods such as consumer electronics assembled in China from high-tech parts imported from Japan, Taiwan and other countries. Shenyin Wanguo cited “signs that the processing trade is accelerating.”

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July’s trade gap was the largest since the $40 billion recorded in November 2008, when China stepped up exports in response to the global financial crisis, and beat western market expectations by a long shot.

Chinese analysts blamed the July decline in imports on fewer shipments of and lower prices for raw materials from, for example, iron ore mines in Australia and oil suppliers in the Middle East.

The Shenyin Wanguo and HuaAn reports said the import decline should not be interpreted as a sign of economic weakness. The decline was “mainly associated with last year’s high base,” HuaAn said. “But with China’s overall economic improvement, looser monetary policies and the gradual emergence of support for the real economy, domestic demand will further improve. Import growth is expected to turn from negative to positive.”

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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