By Kevin Yao

BEIJING (Reuters) - China's exports fell more than expected in June as global demand remained stubbornly weak and as Britain's decision to leave the European Union clouds the outlook for one of Beijing's biggest markets.

Imports also shrank more than forecast, suggesting the impact of a flurry of measures to stimulate growth in the world's second-largest economy may be fading, after encouraging readings in May.

"The uncertainty of Brexit is likely to weigh on demand for China's exports to the EU, similar to the situation when the European debt crisis in 2011-12 intensified," ANZ economists Raymond Yeung and Louis Lam wrote in a note.

"Clearly, China's external outlook will still face tremendous challenges."

Exports fell 4.8 percent in June from a year earlier and were down 7.7 percent in the first half of 2016, the General Administration of Customs said on Wednesday, adding that China's economy faces increasing downward pressure and the trade situation will be severe this year.

Imports dropped 8.4 percent from a year earlier.

That resulted in a trade surplus of $48.11 billion in June, versus forecasts of $46.64 billion and May's $49.98 billion.

Economists polled by Reuters had expected June exports to fall 4.1 percent, matching May's decline, and expected imports to fall 5 percent, following May's 0.4 percent dip.

The import decline in May was the smallest since late 2014, raising hopes that China's domestic demand was picking up.

However, China's imports of iron ore, crude oil, copper and soybeans all eased in June from the preceding month.

"The world economy still faces many uncertainties. For example, Brexit, expectations of an interest rate hike by the Federal Reserve, volatile international financial markets, the geopolitical situation, the threat of terrorism ... these will affect the confidence of consumers and investors globally and curb international trade," customs spokesman Huang Songping told a news conference.

"We believe China's trade situation remains grim and complex this year. The downward pressure is still relatively big."

June industrial output, investment and retail sales will be released on Friday, along with second-quarter gross domestic product, which is expected to show a slight loss of momentum from earlier in the year.


Exports to the United States – China's top export market – fell 10.4 percent in June on-year, while shipments to the European Union – its second biggest market - fell 3.6 percent.

Still, China's steel exports were the second-highest on record, pointing to sluggish demand at home but also likely to signal even greater tensions with its major trading partners.

European Commission President Jean-Claude Juncker told his Chinese counterparts in Beijing on Wednesday that overcapacity in the steel sector is a very serious problem.

Fresh weakness in the yuan currency appears to have done little so far to help China's struggling exporters.

The yuan <CNY=CFXS> fell about 3 percent versus the dollar and nearly 6 percent against a broader basket in the second quarter, though Chinese officials have said repeatedly they will not purposely devalue the currency to boost exports.

Analysts at ANZ said currency depreciation impacted the headline growth numbers. Exports in yuan terms rose 1.3 percent.

The data also showed first-half imports from Hong Kong surged 130 percent. Analysts say large jumps in such imports in the past have been a channel for capital outflows through fake invoicing as companies worry about the yuan weakening.

But spokesman Huang said that the increase in imports from Hong Kong was mainly driven by gold, noting that imports actually fell 2 percent after stripping out gold imports.

"Although gold imports are rising fast, the imported value is not very big. We cannot reach a conclusion on large-scale capital outflows due to surging imports from Hong Kong," said Huang.

(Reporting by Kevin Yao and Elias Glenn; Editing by Kim Coghill)