Chinese Exports Suffer Sharpest Drop Since Start of Pandemic

Andrew Moran
By Andrew Moran
August 9, 2023China News

China’s exports plummeted in July, exacerbating concerns that the post-pandemic recovery for the world’s second-largest economy is fading.

Exports from China declined 14.5 percent year over year, to $281.76 billion, falling short of the consensus estimate of a 12.4 percent slide. This marked the third consecutive monthly decline and the sharpest drop since February 2020, according to the General Administration of Customs.

In the first seven months of 2023, exports tumbled 5 percent, to $1.94 trillion.

Shipments to the United States fell by more than 23 percent from the same time a year ago. Exports to nations of the Association of Southeast Nations (ASEAN) and the European Union slumped 21.4 percent and 20.6 percent, respectively.

China continued to import less last month, supporting the overall year-long downward trend. Imports to China decreased at an annualized pace of 12.4 percent, to $201.16 billion, coming in worse than economists’ expectations of a 5 percent drop. The final print also represented the fifth straight decline in imports and the ninth negative reading in the last 10 months amid deteriorating demand conditions.

Beijing purchased more soybeans (23.5 percent), crude oil (17 percent), and iron ore (2.5 percent). But imports for copper, a critical industrial metal, slid 2.7 percent.

Imports from China’s largest trading partners plummeted by double digits, including South Korea (negative 23 percent), Japan (negative 14.7 percent), Taiwan (negative 14.3 percent), and the U.S. (negative 11.2 percent).

In the January-to-July span, imports contracted nearly 8 percent.

Overall, China’s trade surplus rose for the third straight month, to $80.6 billion. However, this was down 21.5 percent from last year’s surplus of $102.7 billion.

‘Economic Long Covid’

Zichun Hang, a China economist for Capital Economics, says the latest figures “mostly reflect lower prices rather than volumes, which are still well above their pre-pandemic trend.” Still, trade conditions could deteriorate in the coming months, she says.

“We aren’t convinced that this strength will be sustained, given wider evidence that global goods demand is dropping back as pandemic distortions unwind and monetary tightening weighs on consumer spending,” wrote Ms. Zichun in a. note. “Domestic demand has also softened recently, with import volumes falling to their lowest since the start of the year in July. But policy support should help to reverse some of this weakness in the coming months.”

Despite abandoning many of the COVID-related public health restrictions late last year and unleashing additional fiscal and monetary stimulus measures, China’s post-crisis economy has not rallied as many market observers had anticipated.

“The numbers confirm that the #economy’s mounting #growth shortfalls reflect both domestic and external challenges,” economist Mohamed El-Erian posted on social media.

In the second quarter, the Chinese economy expanded by 6.3 percent, up from 4.5 percent in the first quarter. But it came in below the market forecast of 7.3 percent.

The National Bureau of Statistics and the Caxin Manufacturing Purchasing Managers’ Indexes (PMIs)—measurements of the general direction of the sector—were stuck in contraction territory. In July, both PMIs clocked in at 49.3 and 49.2, respectively. Moreover, the services sector continued to slow amid weakening demand as the NBS services PMI slowed to 51.5, down from 53.2.

Retail sales eased considerably, NBS data show. In June, the retail trade climbed 3.1 percent year over year, down from 12.7 percent in the previous month.

China’s labor market has also been a problem this year. While the official urban unemployment rate is 5.2 percent, the youth jobless rate for 16- to 24-year-olds in urban locations surged above 21 percent in June.

Economists assert that the primary driver of youth joblessness has been a mismatch between the positions young people are studying for and the employment opportunities available.

In a slowing economic environment, “young people tend to be particularly vulnerable,” says Goldman Sachs economist Maggie Wei.

“As a result, we might see youth unemployment continuing its upward trend in the next few months,” the bank stated in a report.

Adam Posen, the president of the Peterson Institute for International Economics (PIIE), calls it a case of “economic long COVID.”

“Like a patient suffering from that chronic condition, China’s body economic has not regained its vitality and remains sluggish even now that the acute phase—three years of exceedingly strict and costly zero-COVID lockdown measures—has ended,” Mr. Posen wrote. “The condition is systemic, and the only reliable cure—credibly assuring ordinary Chinese people and companies that there are limits on the government’s intrusion into economic life—cannot be delivered.”

The next key metric to analyze the health of the economic powerhouse is inflation.

The inflation rate for July will be released on Aug. 9, and it is projected to fall 0.4 percent year over year and 0.1 percent month over month. The Producer Price Index (PPI) is also forecast to tumble at an annualized pace of 4.1 percent.

Although the government has reportedly urged economists to stop discussing deflation, the threat has been talked about frequently in recent months. As consumer demand sputters, companies have been slashing prices to revive consumption levels.

Stimulus Expectations

Last week, People’s Bank of China (PBC) governor Pan Gongsheng promised to shift additional financial resources toward the private economy, including agriculture, aluminum, and real estate companies.

This comes one month after the central bank announced a series of policy measures equipped to facilitate economic growth and help businesses cushion the blows from the pandemic-era restrictions and regulatory crackdowns.

Despite rising expectations that Beijing will launch massive stimulus projects to resuscitate an anemic economy, a Goldman Sachs Research economist does not anticipate this.

“In terms of magnitude, we think it’s a moderate amount of easing,” said Hui Shan, the chief China economist at the research arm of the Wall Street titan. “But don’t expect too much just given that this year’s growth target seems to be within reach and the government is really focusing on transforming, restructuring the economy, [rather] than engineering a short-term sharp increase in growth.”

Ben Kirby, the co-head of investments and portfolio manager at Thornburg Investment Management, is “not ready to count it out.”

“China remains an important driver of EM [emerging market] and global growth. After a strong first quarter, growth momentum in China faded in the second quarter,” Mr. Kirby wrote in a research note. “Overall, the reopening has been disappointing, but we’re not ready to count it out. We think China could be looking at fiscal spending in either infrastructure or property markets.”

Experts say that the PBC launched its rate-cutting cycle in June when it trimmed the main benchmark lending rate for the first time in nearly a year. The central bank cut the one-year loan prime rate (LRP) by 10 basis points, to 3.55 percent. Policymakers also lowered the five-year LPR by 10 basis points, to 4.2 percent.

Signs might indicate a fading recovery, but Fitch Ratings anticipates that China’s growth will “remain above target.”

“Recent data point to a swiftly fading rebound in China from the reopening at end-2022, but GDP growth should still remain above the 2023 government target of 5 percent as consumption normalizes and policy support buttresses infrastructure investment,” Fitch wrote.

The group forecasts growth rates of 4.8 percent in 2024 and 4.7 percent in 2025.

From The Epoch Times