China surprises with best export growth since March

China's exports unexpectedly returned to growth in July on improved global demand despite escalating U.S. trade pressure, but the rebound may be short-lived as Washington prepares to slap even more tariffs on Chinese goods.

Analysts say a sharp drop in the yuan currency this week may offer only limited help for Chinese exporters, who are facing additional U.S. levies next month, shrinking profit margins, and sputtering demand worldwide.

July exports rose 3.3% from a year earlier, the fastest since March and more than the most optimistic estimate in a Reuters poll, customs data showed on Thursday. Analysts had expected a 2.0% drop after June's 1.3% fall. But imports remained weak, declining 5.6% and highlighting sluggish domestic demand as China's economy struggles to get back on firmer footing. Still, the drop was less than an expected 8.3% and June's 7.3%.

The better-than-expected trade readings helped buoy Asian stock markets, which suffered a heavy selloff earlier in the week as the Sino-U.S. trade war intensified and the yuan skidded to 11-year lows.[MKTS/GLOB}

While China's exports to the U.S. continued to shrink in July in the face of stiffer tariffs, shipments picked up to Europe, South Korea, Taiwan and, most noticeably, Southeast Asia (ASEAN).

"It could suggest that some exporters are trying to diversify their export regions, it could also be due to manufacturers' relocations to ASEAN (from China)," said Betty Wang, a senior China economist at ANZ. "This hopefully can offset some of the downside risks from the U.S. China bilateral trade."

Washington is clearly watching shifts in China's trade patterns as the trade dispute wears on. The United States recently warned Hanoi that some export goods labelled "Made in Vietnam" were of Chinese origin.

An official Chinese think tank attributed the rise in exports partly to Beijing's Belt and Road initiative, a programme that aims to boost business and trade ties with dozens of countries across the world.

"This year, China did not only increase its market share in major economies like the European Union, what's more outstanding is the growth rate in emerging markets is very clear, especially the countries who we work with on Belt and Road," said Yan Min, the director of the forecasting department at the State Information Center, according to state media.

China's exporters and their U.S. customers have been whipsawed in recent months by trade uncertainties, with the fallout rippling through global suppliers from Germany to Singapore.

The United States raised tariffs on a large number of Chinese goods in May, after trade negotiations broke down, and Beijing retaliated.

A brief ceasefire agreed in late June has proved short-lived, after Trump vowed last week to impose a 10% tariff on $300 billion of Chinese imports from Sept. 1, which would extend levies to effectively all of the goods China sells to the United States. In response, China said it would stop purchasing U.S. agricultural products.

China's trade surplus with the United States stood at $27.97 billion in July, narrowing from June's $29.92 billion. But it reached $168.5 billion in the first seven months of 2019, highlighting continued imbalances which have been a core complaint of Trump's in his administration's negotiations with Beijing.

China's July exports to the United States fell 6.5% year-onyear, while imports from America slumped 19.1%. The dispute between the world's largest economies is spreading beyond tariffs on goods to other areas such technology and in recent days currency policy.