China exports beat estimates in July, AI demand cushions slowdown

Domestic consumption remains subdued. Retail sales eked out 1% growth in June, a thin rebound from May's 0.6% contraction. Consumer inflation cooled to 1% in June from 1.2% in May, while factory-gate prices rose 4.1%, the strongest since July 2022. The economy expanded at its weakest pace since late 2022 in the second quarter, with GDP growth of 4.3%.

"China's export engine is likely to remain strong in the third quarter," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. He expects "intense negotiations between China and the major trading partners in the coming months on what can be done to make trade more balanced" ahead of a U.S.-China summit in September and an EU-China meeting on economic relations in October.

Beijing's trade surplus exceeded $1 trillion last year, a standing grievance for trading partners including the U.S. and the European Union. Officials there have pressed China to rebalance its economy toward boosting consumption. Chinese authorities reaffirmed support for the slowing economy during a policy-setting meeting in late July, promising accelerated fiscal rollout and timely monetary adjustment. They stopped short of concrete steps to lift household spending.