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China trade suffered a worse than expected June, with exports and imports both coming in lower than analysts predicted.

Exports fell by 4.4%, year on year, which follows a 4.8% drop in June. Bloomberg, however, had predicted a 3.5% decline. Exports failed to capitalise on last month’s improvement in the global manufacturing picture, while the weak renminbi is one of the reasons for the sluggish performance.

The Rmb has weakened against the US dollar and this continues to weigh on Chinese trade growth in dollar terms. Ordinarily a weak currency allows a country’s exports to rise as their products cost less abroad. However, poor demand in consumer markets has meant that this has not been the case with regard to China trade.

“Looking ahead, the export performance will likely remain challenged despite a weaker yuan as global demand is too weak for China to reap much benefit from currency depreciation.

“In our view, the risk of overall fixed asset investment (FAI) growth weakening is on the rise in the second half of the year, given we expect no further policy easing from the current level. Consequently, we believe weaker investment growth momentum will continue to pose headwinds to imports in the coming months,” says Sylvia Sheng, China economist at Bank of America Merrill Lynch.

Imports too were way below projected volumes. They posted a 12.5% contraction in July in US dollar terms, from 8.4% in June. This is miles from the 7% contraction predicted by Bloomberg and while low commodity prices are partly to blame, it also points to a fall-away in domestic demand.

Julian Evans-Pritchard, China economist at Capital Economics, says: “In particular, industrial commodity imports have softened recently. The downturn in global commodity prices during the past couple of months is partly to blame for the drop in the value of these imports. But growth in import volumes, which had held up well earlier this year, has also slowed.”

He adds that the rapid growth in imports from Hong Kong suggests trade being used to conceal capital outflows. “However, these illicit outflows will have been small in scale given that imports from Hong Kong totalled US$2.6bn last month, less than 2% of overall imports.”

China trade data has been disappointing for some time. Policymakers are expected to embark on large-scale fiscal expansion in order to inject some life into the sector, with infrastructure projects and overseas investment expected to lead the way.

Meanwhile, steel enjoyed something of a rebound out of China, with over 10 million tonnes being sold in July – despite escalations in litigiousness and hostility over tariffs and dumping.

Overseas shipments of steel rose by 5.8%, while steel exports for the first seven months of the year rose by 8.5% to 67.4 million tonnes. This is the largest volume of steel China has ever exported for the first seven months of the year.