Exports

China’s exports remained stable for most of the first half, despite the ongoing trade tensions with the U.S. Imports were subdued and slowed significantly in the second quarter, leading to a widening surplus. In the meantime, the services trade deficit is shrinking. Therefore, net exports contributed more than 20% to the expansion in the first half, outperforming the contribution of investment.

Whether a boost from net exports can be expected through the rest of the year is doubtful. Although Chinese negotiators are talking with their U.S. counterparts again, there is no certainty that a deal will be reached to prevent another round of tariff hikes. Exports growth already lost momentum in June.

Employment

Employment is the top item on policy makers’ agenda. On Monday, National Bureau of Statistics spokesman Mao Shengyong admitted there was “structural pressure” behind the moderate changes to the official jobless rate. With more than 8 million new graduates entering the job market this summer and the manufacturing sector under pressure, rising unemployment may be inevitable.

Credit & Stimulus

So far, official efforts to underpin the economy have focused on trying to funnel credit to the private sector and small companies, which provide the majority of jobs and output. While there have been signs of success, the government still worries that easy monetary policy isn’t being transmitted correctly. That’s likely to inform what officials do next with regard to stimulus.

A fiscal stimulus plan including about two trillion yuan of tax cuts is slowly feeding through into the economy, though is more likely to stabilize rather than fire up consumption.

In the meantime, the strong credit growth in June will likely moderate as sales of the local government special bonds approach the annual limit. In addition, tightened financing rules in the property sector could lead to a bigger contraction in off-balance-sheet borrowing such as trust loans.

“We continue to see downward pressures to growth in the second half, as prevailing uncertainty around trade policy post G-20 will still weigh on private capex and employment via the confidence channel,” economists including Jenny Zheng and Robin Xing at Morgan Stanley wrote. Expected stimulus measures “could only partly offset growth drags in view of the reactive nature of policy response and the pervasive impact of persistent trade tensions.”