China’s Foreign Exports Plunge, Adding to Economic Woes
China’s foreign exports experienced a significant decline in July, compounding the challenges facing the world‘s second-largest economy and providing fresh evidence of the negative impact of shrinking demand in the West. After a brief rebound earlier this year, China’s foreign goods exports have resumed their downward trajectory that began in October last year. This decline can be attributed to changing consumer spending habits in developed Western countries, where individuals have shifted their preferences from buying furniture and electronics to spending on services such as entertainment and dining out.
Furthermore, rising geopolitical tensions between China and Western countries, primarily led by the United States, have prompted some Western manufacturers to reduce their reliance on Chinese supply chains. This move is expected to further weaken trade ties between the two sides. The latest data indicates a deepening of China’s economic troubles, with signs of crisis in the already struggling real estate market, record-high youth unemployment, and the looming threat of deflation. Many fear that deflation could drag the Chinese economy into a vicious circle.
China is not the only exporting powerhouse in Asia grappling with the decline in global trade demand. South Korea’s exports fell by 16.5% year-on-year in July, widening from a 6% decline in June. Manufacturing in five out of seven Asian countries, including China and Vietnam, also contracted last month, pointing to weak underlying demand in the West.
The dismal data from China and the rest of Asia suggest that the impact of the global growth slowdown is beginning to mount. Economists predict that headwinds to growth in the United States and Europe will continue to dampen consumer spending and business borrowing for the remainder of the year, as the threat of a recession continues. Inflationary pressures are partly to blame for the growth headwinds in Europe and the United States.
According to a report by the United Nations Conference on Trade and Development, the outlook for global trade in the second half of 2023 is pessimistic. The agency expects global merchandise trade to contract by 0.4% quarter-on-quarter in the second quarter, following a 1.9% rise in the first quarter, due to various factors, including inflation and the war in Ukraine.
China’s exports fell by 14.5% year-on-year in July, marking the largest year-on-year drop since February 2020, during the early days of the COVID-19 outbreak, according to data from China’s General Administration of Customs. Notably, China’s exports to the United States and the European Union declined by more than 20% in July compared to the previous year. However, Chinese exports to Russia experienced a surge in July.
Weak exports pose further challenges for China’s domestic economy, which has been struggling on several fronts. The economic recovery, initiated by the lifting of containment measures in China late last year, has been losing momentum since April. The private sector has been severely affected by years of anti-epidemic restrictions and regulatory crackdowns, leading to a loss of consumer confidence in spending on various goods and services. The real estate market, a crucial growth driver, has further deteriorated this year, with a significant decline in investment in real estate development.
China’s road to recovery is expected to be long and difficult, according to Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics. The recent weak trade data for July has added to the bad news for Chinese policymakers, dampening hopes for faster economic growth in the third quarter.
Analysts argue that the decline in Chinese imports reflects broader weaknesses in the global manufacturing chain and persistent weaknesses in domestic consumption. They suggest that the latest batch of weak economic data could prompt Beijing to consider implementing additional stimulus measures. The Chinese government has already urged local governments to expedite bond issuance to support infrastructure spending, which could boost demand for commodities and potentially revive Chinese imports in the coming months. Overall, the prospects for global trade in the near future remain uncertain, with China and other Asian economies facing significant challenges in the face of declining global demand.