Can recovery withstand the spectre of tariffs?

AWANI

China’s economy grew 5.2% in the second quarter, beating expectations. MBSB Investment Bank’s Meor Agil Meor Azalan discusses if this recovery can hold amid Trump’s looming tariffs.

Transcript

00:00Welcome back. China's economy grew 5.2% in the second quarter, outpacing expectations and driven by strong exports.

00:10But with a new round of Trump's tariffs looming and export momentum potentially slowing down, can the recovery hold?

00:17Joining us to break down China's latest economic data is Mio Agil Mio Azalan, senior economist at MBSV Investment Bank.

00:25When we see from an overall picture of the first half of the year, China export rose by 5.9%, totaling around $1.8 trillion.

00:35During this period, shipment grew in agriculture, fertilizer and textile.

00:43Also, we see that the key factor of China's overall trade expansion has been a successful diversification away from the US market.

00:51But exports to the ASEAN saw a significant rise, roughly around 12% in the first half of 2025.

00:59For the six months of the year, China imports fell by 3.9% to $1.2 trillion, dragged by the drops from the US, EU and Russia,

01:11while shipments from the ASEAN countries rose.

01:14Therefore, the first half of 2025, China recorded a total trade surplus.

01:21So, in terms of economic recovery, we saw the first half of 2025 has been stronger than previously expected,

01:28supported by government-supportive policy managers.

01:32Mio also warned that the fragile and temporary US-China trade truce could also slow China's long-term recovery

01:39and affect global economic stability.

01:42Without a comprehensive new trade deal, the default is for tarif to resume or even increase.

01:49However, China export momentum may pick up due to front loading, but with a risk of front loading reversal.

01:56So, we think that the recent search in China exports in June was partly due to companies rushing

02:01shipments to beat August deadline, indicating current momentum is temporary due to the truth,

02:08not much of a sustainable trend.

02:09The US also, at the moment, one of key risks is that the US is also targeting transshipment via third-part third countries.

02:19For example, a 40% tarif on Vietnamese transshipment, closing sort of avenues by the Chinese exporter to bypass tarif.

02:29The US has also a stricter rule on origin enforcement to curb the risk of transshipment.

02:34This sort of may cause risk towards China export performance.

02:38So, the upcoming August 25 deadline to reach a new trade agreement adds further pressure and highly uncertain.

02:45A failure to secure meaningful progress should, could lead to a renewed escalation and weigh heavily on China export outlook.

02:52Also, a sluggish global demand environment, particularly in the major market like US and EU, could also weigh on China's export growth.

03:01So, I think, in summary, we think China has demonstrated resilience through trade diversification and strategic industrial shape.

03:08However, we think its economic recovery remains fragile due to internal demand, weakness, and persistent threat to escalating trade uncertainty.

03:17Global economy should brace for potential continued uncertainty and potential disruption from the US-China trade war and geopolitical landscape.

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