China trade: exports tumble with worst yet to come

  China trade: exports tumble in May, adding to calls for Beijing to boost domestic consumption ‘with worst yet to come’

    China’s exports fell by 7.5 per cent in May compared with a year earlier, while imports fell by 4.5 per cent last month.

    Weak exports caused by falling global demand have increased the pressure for Beijing to boost domestic consumption in the rest of the year, analysts said.

China’s exports, once a key growth driver for the coronavirus-hit economy, recorded a sharp fall in May amid US trade tensions and slowing global demand, highlighting the need for more economic stimulus to lift domestic consumption and investment, analysts said.

Exports fell by 7.5 per cent last month from a year earlier to US$283.5 billion due to weakening external demand across major trading partners and products, in sharp contrast with an increase of 8.5 per cent in April, data released by China Customs on Wednesday showed.

The decline in trade, which contributed to around one fifth of annual economic growth in 2020-22, is just one of the headwinds faced by the world’s second-largest economy.

And China’s economic strength amid Beijing’s recovery efforts will be further assessed in the coming week when consumer inflation, unemployment, property investment and retail sales data is expected to be released.

With the worst yet to come for many developed economies, we think exports will decline further before bottoming out later this year Capital Economics

“With the worst yet to come for many developed economies, we think exports will decline further before bottoming out later this year,” economists at Capital Economics said.

China’s weak exports confirmed the need to rely on domestic demand, said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, as the global economy slows.

“There is more pressure for the government to boost domestic consumption in the rest of the year, as global demand will likely weaken further in the second half,” he said.

Beijing has pledged to shore up trade to support the overall economic recovery, but China’s exports have struggled due to weak global demand.

The year-on-year fall in China’s shipments to the United States accelerated to 18.24 per cent in May, compared to 6.5 per cent in April, marking the 10th straight month of decline.

Meanwhile, exports to the European Union returned to negative growth by falling 7.03 per cent compared to the same time last year, after two months of brief uptick.

Shipments to the Association of Southeast Asian Nations, which were the major driver of China’s robust headline exports in March and April, fell by 15.92 per cent in May. The 10-nation bloc is China’s largest trade partner.

Trade with Russia, however, remained strong last month, with Chinese exports increasing by 114.32 per cent year on year, although the trading volume between the two countries is much smaller.

In May, the export orders subindex of China’s official manufacturing purchasing managers’ index fell further into contraction, dropping to 47.2 from 47.6 in April, after showing an expansion in February and March.

Imports, meanwhile, declined by 4.5 per cent in May from a year earlier to US$217.7 billion, narrowing from a fall of 7.9 per cent April.

The decline was largely due to falling commodity import bills, as global energy prices were down 33.9 per cent year on year in May, while global food prices fell 16.3 per cent, according to Lloyd Chan, senior economist at Oxford Economics.

The disappointing economic activity data in April, which included retail sales, industrial production and fixed-asset investment, suggested China’s domestic demand recovery had lost steam following the reopening-induced bounce in the first quarter, he added.

This will continue to constrain Chinese goods import growth. Plus, slowing global demand will weigh on capital goods imports Lloyd Chan

“This will continue to constrain Chinese goods import growth. Plus, slowing global demand will weigh on capital goods imports,” said Chan.

“We anticipate the [People’s Bank of China] will cut the reserve requirement ratio in the coming months to further spur the domestic recovery.”

China last cut the reserve requirement ratio, the amount that banks must set aside for deposits, by 25 basis points in March.

Wednesday’s data also confirmed China’s trade surplus fell to US$65.8 billion in May, narrowing from US$90.2 billion in April and US$78.4 billion a year ago.
 

Why are doubts about China’s export data increasing?


“Still, the cumulative trade surplus from January-May was US$360 billion, much larger than the same period a year ago (US$281 billion). This should help provide a measure of support for the Chinese yuan,” Chan added.

The yuan’s exchange rate against the US dollar has continued to weaken recently, after falling below a key psychological threshold of 7 per US dollar in May.

Wang Tao, head of Asia economics and chief China economist at UBS Investment Bank, said if China’s growth momentum continues to weaken with disappointing exports, consumption and property activities, Beijing would roll out more positive policies such as boosting infrastructure investment, rolling out targeted consumption support and further easing property policies.

“The upcoming July Politburo meeting is the key time window to watch for policy tone change, while regular State Council meetings in the next two-three months may deliver some details,” Wang said.