(Corrects to add dropped "trln" in 4th bullet point) * Weak trade adds to evidence China's economy lost momentumlastmonth-analyst * June exports -1.3% vs -2.0% forecast * June imports -7.3% vs -4.5% forecast * June new loans at 1.66 trln yuan vs forecast 1.7 trln yuan * C.bank to further lower real interest rates for smallfirms * China and U.S. resume trade talks but no deal in sight By Yawen Chen and Kevin Yao BEIJING, July 12 (Reuters) - China's exports fell in June asthe United States ramped up trade pressure, while imports shrankmore than expected, pointing to further weakness in the world'ssecond-largest economy and slackening global growth.
The gloomy trade readings added to a string of recentdownbeat economic data which have fueled expectations thatBeijing needs to announce more stimulus measures soon to wardoff a sharper slowdown. China is expected to report on Monday that growth in thesecond quarter was the weakest in at least 27 years. Other data released on Friday showed new bank loans rose toa three-month high in June as policymakers sought to keep amplefunds in the financial system, though the tally was less thananalysts had expected. "Overall, imports and exports are declining quarter byquarter, and weak foreign demand will be the biggest challengein the second half of this year," said Zhang Yi, chief economistat Zhonghai Shengrong Capital Management in Beijing. "Short-term policy stimulus should be brought forward." China's manufacturers are struggling with sluggish demand athome and abroad, and a sharp U.S. tariff hike announced in Maythreatens to crush already-thin profit margins. An official Junesurvey showed factories were shedding jobs at the fastest pacesince the global crisis, a major worry for Beijing. June exports fell 1.3% from a year earlier, not as much asthe 2% drop analysts had expected but reversing a surprise gainin May when shippers rushed to beat more U.S. tariffs, customsdata showed.
Imports fell 7.3%, a sharper drop than the 4.5% expected andfollowing a 8.5% contraction in May, suggesting domestic demandremains tepid despite a flurry of growth measures since lastyear. That left China with a trade surplus of $50.98 billion lastmonth, compared with a $41.66 billion surplus in May. "We don't expect global growth to bottom out until nextyear. And while the truce reached between (presidents) Trump andXi at the G20 late last month removes the immediate threat offurther U.S. tariffs, our base case remains that trade talkswill break down again before long," Capital Economics wrote. Highlighting industrial weakness, China's imports of copper,used in electrical gear from wiring to motors, plunged 27% froma year earlier. Imports of other key commodities such as ironore, crude oil, coal, and soybeans also fell from a monthearlier. "Copper demand is still weakening ... for most of thesectors, especially air conditioning," said He Tianyu, ananalyst at consultancy CRU in Shanghai. "The trade war could beone of the factors but the bigger problem is actually China'sdomestic demand - this summer is weaker than last year."
ECONOMY STILL LOSING STEAM So far, Beijing has relied on a combination of fiscalstimulus and monetary easing to weather the slowdown, includinghundreds of billions of dollars in infrastructure spending andtax cuts for companies. The central bank has also slashed banks' reserverequirements six times since early 2018, freeing up more moneyto lend, with more cuts expected in coming quarters. Someanalysts believe it could also trim short-term borrowing ratesif the U.S. Federal Reserve eases policy later this month.
But the economy has been slow to respond, and businessconfidence remains shaky, weighing on investment. "Policy easing is still nudging up broad credit growth,"Capital Economics wrote in a note. "But...the pick-up in lending has been modest relative toprevious loosening cycles and is unlikely to prevent economicgrowth from slowing further in the coming quarters," the notesaid. Chinese banks made 1.66 trillion yuan ($241.47 billion) innew loans last month, but the figure was less than the samemonth last year. China's economic growth is expected to slow to a near30-year low of 6.2% this year, from 6.6% in 2018, a Reuters pollshowed on Wednesday. Growth next year will likely cool further to 6.0%, the pollshowed, and some analysts say it could be even weaker if tradetalks blow up again and Washington imposes more tariffs on goodsand restrictions on Chinese technology companies. China's overall hi-tech imports slipped 6.0% in June onyear, the eighth consecutive month of decline, according to ANZ.
AWAITING NEXT ROUND OF TALKS June marked the first full month of higher U.S. tariffs on$200 billion of Chinese goods, which Washington imposed aftertrade talks between the world's largest economies broke down. Though the countries' leaders agreed in late June to resumenegotiations, and the U.S. said it would hold off on additionallevies, existing tariffs remain in place, producing a long slowburn for the Chinese economy, according to ING. Some exporters which lowered prices for U.S. customers afterearlier tariffs have reportedly said they cannot absorb the new,stiffer levies and still make money.
No timeframe has been set for a new round of face-to-facetrade talks, and the two sides remain at odds over significantissues, raising the risk of a longer and costlier battle thatcould trigger a global recession. China's trade surplus with the United States, a major sourceof friction, rose 11% in June from May to $29.92 billion. For the first half, the surplus with the U.S. rose around 5%to $140.48 billion from the same period a year earlier. China's exports to U.S. fell 7.8% in June on-year, while itsimports from America plunged 31.4%. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^GRAPHIC - China's economic trends ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Yawen Chen, Kevin Yao, Huizhong Wu, Se Young Lee; Writing by Stealla Qiu and Tony MunroeEditing by Kim Coghill)
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