China’s trade sector delivered another strong performance in July, with export growth continuing to outpace expectations and reinforcing the country’s growing reliance on external demand at a time when domestic price pressures remain subdued.
According to analyses by Lynn Song, chief economist for Greater China at ING, the divergence between robust trade activity and fragile domestic demand is becoming increasingly apparent.
July trade data showed that China’s exports rose 23.9% year on year, only slightly below June’s 27.0% growth rate. Imports also remained strong, increasing 27.5%, while the country recorded a trade surplus of US$112.5 billion, above market expectations. Song said Chinese exports surged in July as external demand remained strong “for sectors from ships to autos to tech”.
The figures underline the increasingly important role that overseas markets are playing in supporting Chinese manufacturing. Export growth continues to be driven by higher-value industrial and technology products, reflecting a longer-term structural shift in China’s export mix.
“The product breakdown of China’s exports continued to show the shift toward higher value-added exports,” Song noted. Semiconductor exports expanded by 116.6% year on year in July, while ship exports surged 92.4%. Auto exports, although moderating from previous highs, still posted a substantial 60.4% increase, and high-tech exports rose 52.7%.
The technology sector’s contribution to export growth is particularly significant as geopolitical tensions continue to complicate trade flows.
Despite a series of trade disputes between Beijing and Washington during the month, exports to the US remained resilient.
According to Song: “We saw the fourth straight month of double-digit year-on-year export growth to the US, which rose 17.0% in July.”
This performance came despite new restrictions affecting trade in advanced technologies. Song noted that the US banned imports of certain Chinese robotics products and power inverters, while China responded with export controls on drones and added six US entities to countermeasure lists. Nevertheless, trade flows largely continued, supported by what Song described as a “fragile trade truce” ahead of a planned meeting between Chinese President Xi Jinping and US leaders later this year.
Wider net
Beyond the US market, Chinese exporters are finding growing opportunities across a diverse group of trading partners. Mexico emerged as one of the strongest destinations for Chinese exports, recording growth of 48.8% in July. Exports to South Korea rose 46.6%, ASEAN markets increased 38.4%, and shipments to Russia climbed 34.9%. Exports to the European Union and Japan also expanded at healthy rates of 16.0% and 14.0% respectively.
The widespread nature of the export expansion highlights China’s success in diversifying trade relationships amid ongoing geopolitical uncertainty. For manufacturers, this broad geographic demand base provides some protection against disruptions in any single market.
On the import side, the picture reveals a different but equally important trend. While commodity demand remains uneven, technology-related imports continue to accelerate.
“Imports continue to be driven by tech,” Song said, noting particularly strong growth in high-tech product categories. High-tech imports increased 58.8% year on year.
Energy imports, meanwhile, illustrate how China’s purchasing patterns are shifting in response to market conditions. Oil imports remained weak, although conditions improved compared with June. Import volumes were down 24.3% year-on-year, substantially better than the 41.3% decline recorded a month earlier.
Instead of crude oil, import growth was concentrated in alternative energy supplies, with coal and lignite imports jumping 83.8% and natural gas imports increasing 20.2%.
According to Song, “we’re seeing imports shift to alternatives”, reflecting changing energy procurement strategies as markets adjust to global price movements and supply conditions.
The strength of both exports and imports has helped restore momentum to China’s trade balance. Through the first seven months of 2026, the country accumulated a trade surplus of $687.4 billion, up 1.0% from the same period a year earlier. “This marks the first time since February that we’ve seen the year-to-date trade surplus in positive year-on-year growth,” Song said.
Domestic troubles
Yet the upbeat trade picture stands in contrast to softer signals coming from China’s domestic economy. In a separate analysis of inflation trends, Song highlighted slowing consumer and producer price growth, suggesting that local demand remains fragile despite industrial strength.
China’s consumer price index rose just 0.5% year on year in July, a six-month low and below expectations. Producer price inflation also moderated to 3.5%, down from 4.1% in June. The slowing pace of inflation reflects persistent weakness in sectors tied to household spending and property markets.
Food prices continued to decline, marking a fourth consecutive month of deflation, while rents remained in negative territory for a fourth straight month. “It appears that roughly half of the Consumer Prices Index is being held back by sticky deflation in food and rent, while volatility in energy prices is driving the monthly change,” Song said.
For international traders and exporters, this domestic weakness has important implications. A subdued consumer environment limits demand for imported consumer goods while simultaneously increasing pressure on manufacturers to look overseas for growth opportunities. The result is a trade sector that is carrying a disproportionate share of the economic burden.
But although inflation has softened, Song stopped short of declaring the reflation story over. “
“We’d hesitate to call an end to China’s reflation story despite the slowing headline inflation,” he said. However, he also warned that “risks to this trajectory look bigger than they were a few months ago, especially as domestic demand still looks weak without significant policy support to turn things around”.
That assessment reinforces the central theme emerging from China’s latest economic data. Export growth remains powerful, technology trade is expanding rapidly, and the trade surplus is strengthening again. Yet the domestic economy continues to struggle with weak consumption and persistent deflationary pressures in key sectors.
Source: Baltic Exchange
