China reports decent exports and record high surplus again

China's monthly trade surplus hit a record high again in August, as improving external demand fueled exports and weak domestic investment and falling commodity prices continued to affect imports, new customs data showed on Monday.

China's trade surplus in August jumped 77.8 percent year-on-year to 49.8 billion U.S. dollars, after reaching an all-time high of 47.3 billion U.S. dollars in July.

According to the General Administration of Customs (GAC), China exported 208 billion U.S. dollars worth of goods in August, up 9.4 percent year-on-year, slightly above the market consensus of 9.0 percent.

The export growth was significantly lower than the 14.5-percent rise in July, but higher than June's 7.2 percent.

August's imports continued to contract and stood at 159 billion U.S. dollars, a year-on-year decrease of 2.4 percent, compared to the 1.6-percent drop in July and the market consensus projection of a 3.0-percent rise.

For the first eight months, exports gained 3.8 percent to 1.48 trillion U.S. dollars, while imports edged up by a mere 0.6 percent to 1.28 trillion U.S. dollars.

Trade surplus stood at 200 billion U.S. dollars in the first eight months, an increase of 30.3 percent from a year earlier, according to the GAC.

Li Jian of the Ministry of Commerce, said trade with major partners including the EU, the United States and ASEAN continued to grow last month, suggesting that recovery of external demand since the second quarter of this year has further consolidated.

Customs data showed that China's exports to the U.S. and EU in August rose 11.4 percent and 12.5 percent year-on-year, respectively, down from 12.3 percent and 17.0 percent, respectively in July.

August's exports to ASEAN accelerated to 13.0 percent from 11.9 percent in July.

Continued weakness in imports is consistent with soft domestic demand. This is attributable to the continued property market correction and industry overcapacity, which have weighed on property and manufacturing investment, Barclays chief China economist Chang Jian said in a note.

Kevin Lai, China economist with Daiwa Capital Markets, agreed.

"The fall in imports reflects poor domestic-demand conditions in general. The malaise in the real-estate market is affecting many industries that need imports of raw materials," Lai said.

Lu Ting, chief China economist with Bank of America Merrill Lynch, offered a different explanation, however.

"The poor import growth readings were no doubt affected by China's weak investment demand to some extent. But the major factors, in our view, are falling commodity prices and a reversal of commodity financing deals," he said.

Global prices of iron ore and crude oil, the two biggest import items for China, dropped 36 percent and 5 percent year-on-year, respectively in August, Lu said.

China's import growth of iron ore was at a healthy rate of 8.5 percent year-on-year in August in volume terms. But in value terms, iron ore import contracted 17.1 percent from a year earlier.

Import value of coal shrunk 41.2 percent in August from the 30.2-percent decline in July. That of steel products dropped 3.1 percent year-on-year in August, from the 5.9-percent rise in July, Lu said.

"One of the rare positive effects of slowing investment growth is declining commodity prices," Lu said.

Falling crude oil and iron ore prices could save China 5 billion U.S. dollars per month on import bills for the rest of this year, according to Lu.

Both Chang and Lu expected current trade growth pattern -- decent exports and soft imports -- to continue in the second half of this year.

Entering into September, China's export growth is set to be boosted by iPhone 6, an American product assembled in China, by one percentage percent per month through year, and China is poised to have high single digit year-on-year export growth for the rest of this year, Lu said.

All iPhone 6, except those sold in China, are counted as exports. So the launch of iPhone 6 will boost exports, Lu said.

Kavin Lai was a bit more cautious. Poor import data do not bode well for exports going forward, should some of the import weakness reflect a cut-back in export orders, he said.

The latest export-orders component of the official manufacturing PMI, a key measure of factory activity in China, fell from 50.8 to 50, and the same happened in the HSBC PMI, Lai said.

Chang also said the record high trade surplus is likely to add further upward pressure on value of the Chinese yuan in the near term.

There could be more volatility in the exchange rate and higher demand for the yuan in the offshore market, she added.