China Watch Blog

China Watch Blog has reported that the Mainland’’s trade growth continued on a fast track last month with the value of exports hitting the highest point in nearly two years, but the advancing paces of both exports and imports were slower form that in May.

Analysts warned, however, of uncertainties ahead because of the European sovereign debt crisis, the fading effect of a low comparative base and growing pressure from a stronger yuan.

China settled last month’s trade volume at US$254.7 billion, a record high since July of 2008, the General Administration of Customs said.

China’s export jump of 43.9 percent from a year earlier, to US$137.4 billion in June, was lower than the surge of 48.5 percent a month earlier.

The June gain in imports of 34.1 percent, to US$117.3 billion, was less than the gain of 48.3 percent in May, the Customs said.

The trade surplus in the first six months dropped 42.5 percent from a year earlier to US$55.3 billion, helped by faster growth in imports than exports in the previous months.

“China’s trade performance is quite impressive against the background of deteriorating crisis elsewhere in the world,” said Xue Jun, an analyst at CITIC Securities Co. “China’s strong and stable economy is a solid backup for the trade growth.”

Xue warned the exports advance may slow in coming months because of the debt crisis affecting the European Union.

Li Maoyu, an analyst at Changjiang Securities Co, said the tendency of a stronger yuan may also deal a blow to China’s exports, an important driver for China’s economy.

The yuan has appreciated against the US dollar to 6.78 from 6.83 since China announced last month to make its foreign exchange regime more flexible.

China’s economy is expected to continue a fast expansion in the second quarter, though the pace will be a bit slower than in the first three months, analysts said. But the real challenges for policy makers will emerge next year, they warned.

The gross domestic product in China may grow 10.6 percent from a year earlier in the second quarter, according to an estimate by Pei Changhong, director of the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences.

The projection was similar to the forecast of a 10.5-percent increase on the average by a Reuters poll.

“All 32 economists polled by Reuters predicted a moderation in China’s year-on-year growth rate in the second quarter, though the expansion rate could still be in the double digits,” the agency said today. “This comes as no surprise because first-quarter figures were flattered by a low comparative base effect stemming from the financial crisis,” it said.

Pei saw China’s economic growth slowing quarter after quarter, with the expansion rate standing at 10.1 percent and 9.3 percent in the third quarter and the fourth, compared with the surge of 11.9 percent in the first three months.

“The real challenges for macroeconomic control will emerge next year,” Pei said. “At that time China will have to face fading effect of stimulus while the global economy was still full of uncertainties like the sovereign debt crisis which could sap the country’s trade growth.”

The People’s Bank of China said last week that China would continue its relatively loose monetary policy during the latter half of the year to maintain the consistency and stability of macroeconomic policies.

China’s top leaders have been preparing for the challenge. Central government officials have begun a research tour to provinces such as Zhejiang and Hunan to investigate economic conditions, and preparing for the design of next year’s broad economic policy.

China Watch Blog has picked up news that the central parity rate of the yuan, China’s currency Renminbi (RMB), stood at 6.7718 per U.S. dollar Monday, a new record high, according to the data released by the China Foreign Exchange Trading System.

China’s central bank announced on June 19 that it would further the reform of the formation mechanism of the yuan exchange rate to improve its flexibility, Xinhua reported.