The August trade figures show that Chinese domestic demand is holding up well, allaying fears of a sharp slowdown in the economy. External demand, particularly in emerging nations, is also firm. China’s imports rose by 30.2% in August, year-on-year, and exports by 24.5%, cutting the country’s trade surplus to $17.8 billion from $31.5 billion in July. For the first eight months of the year, the trade surplus is only down 10% year-on-year, despite a trade deficit in the first quarter.
The question is whether those growth rates on both sides of the trade ledger can be sustained in the face of sluggish growth in Chinese exporters’ markets in the U.S. and Europe. On the face of it Chinese manufacturers are expressing optimism. Much of the rise in August’s imports was due to restocking of raw materials. Two consecutive months of strong import growth give China’s policymakers no reason to ease monetary policy. We still believe that stubbornly high inflation, still policymakers’ priority, make tightening more likely. In the meantime, the yuan will continue to be allowed to strengthen agains the dollar.