China’s Exports Slump in May as Recovery Struggles: Latest News & Analysis

China’s exports slipped back into the red in May while imports continued to struggle, hurt by a fragile recovery in the world’s second-largest economy and sluggish global demand. Chinese exports, which have historically been a key growth lever for the country, experienced a brief rebound in March and April. The threat of recession in the United States and Europe, combined with galloping inflation, is contributing to weakening international demand for Chinese products. Against this backdrop, China’s exports contracted last month by 7.5% year-on-year, the first decline since February, according to dollar figures released Wednesday by China Customs. Analysts polled by the Bloomberg agency expected a more moderate fall (-1.8%).

In April, the Asian giant’s sales abroad had again increased by +8.5% year-on-year. Last month, Chinese exports were “lower in volume than levels at the start of the year,” said analyst Julian Evans-Pritchard of Capital Economics. “For many economies, the worst is yet to come […] Chinese exports should thus continue to fall” in the coming months, warns Mr. Evans-Pritchard. “China is partly dependent on the health of European and American industries which assemble their products in China”, remarks Guillaume Dejean , macro and foreign exchange analyst for the Convera financial group.”However, high inflation and the rise in interest rates in these regions have seriously penalized demand,” he noted in a note at the end of May.

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Recovery running out of steam

In general, Chinese exports had been constantly in the red since October 2022 when the so-called “zero Covid” policy was heavily penalizing the country’s economy. China finally lifted most of its draconian health restrictions in December, paving the way for a recovery in activity which is, however, struggling to materialize in certain sectors. For their part, imports from the Asian giant also experienced a decline last month (-4.5%) over one year, according to Customs. However, this is a less pronounced contraction than that of April (-7.9%) and the forecasts of analysts polled by Bloomberg (-8%).

Logically, the trade surplus of the Asian giant melted in May to 65.81 billion dollars (61.5 billion euros), against 90.2 billion dollars a month earlier. “In volume, imports (from China) reached their highest level for 18 months”, which supports the idea of ​​a relative recovery of the economy, estimates Mr. Evans-Pritchard. Freed from health restrictions, China recorded a marked acceleration in its growth in the first quarter (+4.5% over one year). But the recovery is running out of steam and remains uneven, the economy being weighed down by an over-indebted real estate sector, sluggish consumer confidence and the global economic slowdown. Manufacturing activity in China thus experienced a decline in May for the second consecutive month.

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Overdue real estate

To support its economy, Beijing could put in place a “new recovery plan for the real estate sector” and decree rate cuts, urges analyst Ken Cheung of the Japanese bank Mizuho. Real estate, which for a long time represented with construction about a quarter of China’s GDP, is an essential pillar of the country’s growth. It is also an important source of income for local authorities, whose finances are depleted after three years of staggering expenditure to fight the Covid. To revive a struggling sector, the government had announced targeted support measures for the financially soundest promoters.

For two decades, real estate groups have been able to develop at high speed thanks to bank loans, but their debt has swelled so much that the authorities have decided to put a stop to it from 2020. Since then, their access to credit has improved. drastically reduced as demand for real estate plummeted against a backdrop of economic slowdown and crisis of confidence. The government has set a growth target for this year of around 5%, one of the lowest in decades. A goal that will not be “easy” to achieve, according to Prime Minister Li Qiang himself.

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