Decline in China’s exports alleviates in August, resilient trade balance to ease capital outflows

China’s exports dropped again in August, as external demand continued to be subdued. However, the exports declined by a lower margin than projections. The weaker RMB accounts for 8.7 percentage points of the difference in headline export growth, said ANZ in a research report.

China’s exports in USD terms shrank 2.8 percent year-on-year, as compared with consensus expectations of a contraction of 4 percent. Meanwhile, in terms of CNY exports were up 5.9 percent. The country recorded a 1.5 percent rise in imports, much better than consensus expectations of a contraction of 4.9 percent.

The trade surplus in China inched down to USD 52.05 billion from previous month’s USD 52.3 billion. According to ANZ, the resilient trade balance of USD 52.05 billion would ease capital outflows. Without the trade surplus, the net outflow would deteriorate further because of services deficit and portfolio outflows.

In the first half of 2016, China recorded net capital and financial outflows of USD 217.4 billion, lower than the total trade surplus of USD 269.2 billion recorded in the first half of 2015. The solid trade surpluses in July and August might help ease the pressure on capital outflows in the third quarter and possibly the fourth quarter, added ANZ.

Subdued global demand would continue to be a drag on China’s export and manufacturing outlook. The PMI showed that new export orders in August remained in contraction territory, although there was a slight rebound. The recent U.S. ISM data was also disappointing. Downside risk is expected to continue in the coming few months, stated ANZ.