China’s Exports Plunge Amidst Weakening Global Demand and Calls for Stimulus

China’s exports experienced a significant contraction last month, marking the fastest pace of decline since the onset of the COVID-19 pandemic three years ago. The ailing global economy has put mounting pressure on Chinese policymakers to implement fresh stimulus measures. The momentum of China’s post-pandemic recovery has slowed after a strong start in the first quarter, leading analysts to downgrade their projections for the rest of the year. Factory output has been affected by persistently weak global demand.

Data from China’s Customs Bureau revealed that outbound shipments from the world’s second-largest economy dropped by 12.4% year-on-year in June, following a decline of 7.5% in May. Imports also contracted by 6.8%, surpassing the expected decline of 4.0% and the previous month’s fall of 4.5%.

Zichun Huang, China economist at Capital Economics, stated that the global downturn in goods demand will continue to weigh on exports, and further decline is expected before reaching a bottom towards the end of the year. However, Huang added that the worst of the decline in foreign demand is likely already behind us.

Lv Daliang, a spokesperson for the General Administration of Customs, attributed the poor export performance to a weak global economic recovery, slowing global trade and investment, and rising unilateralism, protectionism, and geopolitics. Exports to the United States, China’s top destination for goods, have experienced the most significant decline among major trading partners due to diplomatic tensions surrounding chip technology and other issues. On the other hand, exports to Russia have seen a sharp increase, albeit from a modest level.

China’s prospects for a quick recovery have dimmed due to the impact of COVID-related lockdowns on the economy in 2022. With exports accounting for approximately one-fifth of the economy and the troubled property sector representing about one-third, the government has set a modest GDP growth target of around 5% for this year, following a significant miss of last year’s goal.

Xu Tianchen, senior economist at the Economist Intelligence Unit, believes that soft exports and deflationary pressure will lead to calls for stimulus. However, he does not expect the scale of support to be enormous due to fiscal constraints on the government, which would require increased borrowing to fund larger expenditures.

Chinese Premier Li Qiang, who assumed office in March, has promised to introduce policy measures to boost demand and invigorate markets. However, few concrete steps have been announced, leading to growing impatience among investors. The Chinese yuan slipped against the dollar following the release of the data, but analysts anticipate limited further currency weakness as attention turns to next month’s Politburo meeting and the potential for economic stimulus action.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, highlights the question of whether domestic demand can rebound without significant stimulus in the coming months. Factory activity in China has been shrinking recently, and consumer prices teetered on the edge of deflation in June, while producer prices fell at their fastest pace in over seven years.

Chinese imports of semiconductors experienced a 13.6% decline in June, slower than the 15.3% drop seen in May. This indicates limited appetite among Chinese manufacturers for components to re-export in finished goods. Additionally, there are signs of weakness in the demand for raw materials, with copper imports down 16.4% in June compared to the previous year.

In conclusion, China’s exports have contracted at a rapid pace, prompting calls for stimulus measures to support the ailing global economy. The government faces fiscal constraints, limiting the scale of potential support. Premier Li Qiang has promised policy measures to boost demand, but concrete steps have yet to be announced, leading to growing impatience among investors. The focus now turns to next month’s Politburo meeting and the potential for economic stimulus action.

What are the main challenges that China’s economy is expected to face in the coming months, particularly in terms of exports and deflationary pressure, and how might these challenges impact the country’s overall GDP growth target

Further challenges for China’s economy in the coming months. The decline in exports, coupled with weak global demand, has prompted Chinese policymakers to consider additional stimulus measures. While the initial recovery from the pandemic was strong, the momentum has slowed in recent months, causing analysts to revise their outlook for the remainder of the year. The manufacturing sector has been particularly impacted by the lack of global demand.

According to data from China’s Customs Bureau, outbound shipments in June saw a year-on-year decline of 12.4%, following a 7.5% decline in May. Additionally, imports contracted by 6.8%, surpassing expectations and the previous month’s fall. Zichun Huang, an economist at Capital Economics, predicts that the decline in foreign demand will continue to weigh on exports, but the worst may already be behind us.

A spokesperson for the General Administration of Customs attributed the poor export performance to a weak global economic recovery, slowing global trade, and rising unilateralism and protectionism. The United States, China’s largest trading partner, has seen a significant decline in imports due to diplomatic tensions. On the other hand, exports to Russia have increased, although they remain modest in comparison.

The impact of COVID-related lockdowns in 2022 has dimmed China’s prospects for a swift recovery. With exports and the troubled property sector representing significant portions of the economy, the government has set a modest GDP growth target of around 5% for this year. Xu Tianchen, a senior economist at the Economist Intelligence Unit, anticipates further challenges for China’s economy, including soft exports and deflationary pressure.