Chinese Exports Fall at Steepest Pace Since February 2020
China’s exports to the rest of the world tumbled in July, adding to the challenges for the world’s second-largest economy and offering fresh evidence that a drying up of Western demand is hurting Beijing’s attempts to rekindle growth. After a short-lived rebound in the spring, goods exports from China resumed a long-term slide that dates to October last year, when consumers in Western developed countries began shifting their spending away from buying furniture and electronic gadgets, and instead diverted it toward services such as entertainment and dining out.
Worsening geopolitical tensions between Beijing and the U.S.-led West have also prompted some Western manufacturers to reduce their reliance on China’s supply chain, which in turn is expected to erode trade ties between the two sides. Asia’s other export powerhouses are also grappling with crumbling global trade demand. South Korea’s exports fell 16.5% year-over-year in July, widening from a 6% drop in June. Purchasing managers indexes showed the manufacturing sectors in five out of seven Asian countries, including China and Vietnam, were in contraction last month, pointing to weak underlying demand from the West.
Taken together, sluggish figures in China and other parts of Asia suggest that the global growth slowdown is starting to bite harder. Economists predict that growth headwinds in the U.S. and Europe, in part the result of persistent inflationary pressures, will continue to curb consumer spending and business borrowing for the rest of the year as the threat of a recession lingers. “Overall, the outlook for global trade in the second half of 2023 is pessimistic,” the United Nations Conference on Trade and Development wrote in a June report.
The organization now forecasts the global goods trade to shrink by 0.4% in the second quarter when compared with the previous quarter, after rising 1.9% in the first three months of the year, thanks to a host of factors including inflation and the war in Ukraine. Overseas shipments from China slumped 14.5% in July from a year earlier, the steepest year-over-year decline since February 2020, in the earliest days of the Covid-19 pandemic, data released Tuesday by China’s General Administration of Customs showed.
Compared with those of a year earlier, China’s exports to the U.S. and European Union plunged by more than 20% each last month. There was a lone bright spot: Chinese shipments to Russia soared in July, calculations from the customs data show. Chinese consumers are tightening their purse strings, weighing on China’s economic recovery. For China, weakening exports signal more trouble for its domestic economy, which is sputtering on several fronts.
The country’s economic recovery, which was sparked by the lifting of Covid-control measures late last year, has been losing steam since April. A beleaguered housing market has weighed on construction activity, consumers are tightening their purse strings and a record number of young people are out of work. The latest data show China is on the brink of falling into deflation, a scenario that many fear could drag the economy into a downward spiral. China is set to release monthly inflation data on Wednesday.
Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, said July’s subpar trade figures spell more bad news for Chinese policy makers and their hopes for an economic acceleration in the third quarter. “It’d be a long slog back for China,” he said. The U.S. produces more corn than any other crop and American farms sold $5.3 billion of it to China last year. But China has spent years courting other producers and it is exploring ways to become self-sufficient long-term. Illustration: Annie Zhao
July’s 14.5% drop in Chinese outbound goods shipments was sharper than the 12.4% year-over-year decline in June and outpaced the 12% decline expected by economists polled by The Wall Street Journal. Chinese goods shipments to the U.S. fell 23% in July compared with a year earlier. Shipments to the European Union and to the Association of Southeast Asian Nations, a group of 10 countries that includes Singapore and Indonesia, each dropped by about 21%.
Chinese shipments to Russia, a country under Western sanctions over its invasion of Ukraine, rose 52% in July from a year earlier, helped by sales of high-value goods including automobiles. For the first seven months of this year, Chinese exports to Russia soared 73% from a year earlier, even as China’s total exports have fallen 5%, data from Chinese customs show.
Still, economists say given that the overall size of the trade relationship with Russia remains relatively small—roughly equal to one-third of China’s overall trade with the U.S.—booming trade between the two neighbors and geopolitical partners wouldn’t reverse the longer-term overall slowdown in Chinese exports. Chinese exports to Russia rose in July, helped by sales of high-value goods including automobiles.
The bad news for many Chinese manufacturers and exporters is that rich countries in the West are reducing their reliance on Chinese goods. U.S. officials and their allies in Europe have been prompting firms to move production away from China toward a circle of trusted nations instead. That has weakened trade links between the U.S. and China. The U.S. became a relatively less important export market for China over the past year and a half, while the U.S.’s dependence on China as a goods supplier has decreased by even more, according to Unctad.
Chinese imports also fell by more than expected in July, falling 12.4% compared with last year, versus June’s 6.8% decline, marking the worst month of year-over-year declines since January and well below the 5% drop expected by surveyed economists. The fall in Chinese imports, which include intermediate goods that Chinese companies turn into finished products, reflects the broader weakness in the entire chain of global manufacturing, analysts say. It also shows just how tepid domestic consumption remains, even with China’s economy freed from Covid-related curbs for more than six months.
Economists say the latest raft of soft economic data will likely prompt Beijing to consider more stimulus measures. Chinese officials have already ordered local governments to more quickly issue bonds to fund infrastructure spending, a move that could boost China’s appetite for commodities and help Chinese imports regain ground in the coming months, say economists from Capital Economics.
