China June trade data misses forecasts, doubts over economy linger

By Aileen Wang and Koh Gui Qing

BEIJING (Reuters) - China's trade performance improved in June but still missed market forecasts, reinforcing expectations that Beijing will have to unveil more stimulus measures to stabilise the economy and meet its 2014 growth target.

Exports rose 7.2 percent in June from a year earlier, the best pace in five months, but well below a median forecast in a Reuters poll for a rise of 10.6 percent.

Imports also missed expectations, growing by 5.5 percent versus forecasts of 5.8 percent, although they returned to positive territory after a small drop in May.

China's combined exports and imports edged up just 1.2 percent in first six months of the year, data showed on Thursday.

"For the economy to rebound in the second half of this year, we believe more policy support is necessary due to the unsteady recovery base," said Wang Jun, economist at the China Centre for International Economic Exchanges, a think-tank in Beijing.

Premier Li Keqiang said on Monday that economic growth quickened in the second quarter from the previous three months, but added that further modest government support measures will still be needed. Beijing has set an annual growth target of around 7.5 percent.

Since April, China has steadily loosened policy by reducing the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing.

Evidence has mounted in recent weeks that those measures are beginning to have some effect, arresting a cooldown in activity which saw growth slide to an 18-month low of 7.4 percent in the first quarter.

The latest Reuters poll showed the economy probably steadied in the second quarter, with annual growth holding firm at 7.4 percent as the policy measures kicked in.

But economists say the recovery still appears patchy, and more stimulus may be needed to offset the downdraft from a cooling property market on the broader economy.

Data on Wednesday showed consumer inflation cooled slightly more than expected in June while producers' prices fell for the 28th straight month, signalling domestic demand remained lukewarm.

Second-quarter GDP along with June retail sales, industrial output and investment data will be released on July 16.

TARGETS IN DOUBT

The customs office expects exports to pick up in the second half of the year in line with improving global demand, but spokesperson Zheng Yuesheng said China will need to "invest arduous efforts" if it wants to meet its 7.5 percent trade growth target.

Analysts think it may already be too late.

"We think China could miss its target ...We expect combined exports and imports to rise 5 percent in 2014 from a year ago," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

China's exports were sluggish earlier this year but its trade performance has gained traction in recent months, helped by an improving U.S. economy and as the government gave exporters more tax breaks, credit insurance, and currency hedging options.

Exports to the United States, China's top export destination, rose 7.5 percent in June, quickening from a rise of 6.3 percent in May, while those to the European Union, the second most important market, grew 13.1 percent, compared with 13.4 percent in May.

China posted a trade surplus of $31.6 billion in June, down from $35.9 billion in May.

Recent factory activity surveys, however, have shown a marked slowdown in growth in export orders, indicating that domestic demand may have to continue picking up the slack.

(Additional reporting by Xiaoyi Shao; Editing by Tomasz Janowski & Kim Coghill)