Yuan rally, carryover effect drive Chinas trade surplus down

The countrys exports in yuan-denominated terms rose 6.9 percent year on year in August while imports increased 14 percent, customs data showed Friday.

That led to a monthly trade surplus of 286.5 billion yuan (about 44 billion U.S. dollars), down 14 percent year on year, according to the General Administration of Customs.

Total foreign trade reached 2.41 trillion yuan last month, up 10 percent from a year earlier.

In the first eight months combined, exports increased 13 percent year on year while imports rose 22.5 percent, resulting in a 15-percent decline in trade surplus.

The slower trade growth in August was a result of a stronger yuan in recent weeks and a higher base in the second half of last year, according to Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation.

The yuan has been on an upward trajectory against the U.S. dollar this year due to the weakening greenback and steady expansion of the Chinese economy.

The central parity rate of the Chinese currency strengthened to 6.5032 against the U.S. dollar on Friday, its strongest level since May 2016, according to the China Foreign Exchange Trade System.

International competition and foreign investment change also weighed on the exports slip, analysts said.

"Foreign-funded companies invested more in Chinas service industry, which can serve local consumers but does not add to exports. This also played a part in the trade slump," Bai said. Latest data showed Chinas service trade deficit in the period reached 1.04 trillion yuan in the first seven months.

Bai expects the pressure for appreciation to ease, while predicting overall stable growth in foreign trade.

Liu Liu from China International Capital Corporation Limited said that the recent appreciation of the renminbi should not exert a large drag on exports.

"Since the U.S. dollar weakened significantly against other major currencies, the renminbi did not appreciate significantly against a basket of currencies... and it is unlikely to exert a large drag on exports," according to Liu, also noting that the yuan is still depreciating against a basket of currencies.

Liu further noted that the renminbis appreciation against the U.S. dollar will help the rebalancing of China-U.S. trade.

In the first eight months, trade with theUnited States,ASEANandJapanrose by 19 percent, 19.9 percent and 15.4 percent, respectively.

During this period, Chinas foreign trade totaled 17.83 trillion yuan, up 17 percent year on year. Trade with the EU, Chinas largest trade partner, climbed 16 percent from a year earlier to 2.71 trillion yuan.

A leading indicator of Chinas exports stayed flat month on month at 41.9 in August, signaling stable export potential.

Looking into the future, Liu said that economic fundamentals indicate improving external demand, but uncertainties in global trade still exist.