China’s Exports Face Steepest Decline Since Start of Pandemic

China's Exports Face Steepest Decline Since Start of Pandemic | The Entrepreneur Review

China’s exports sector experienced a sharp contraction in June, marking the largest decline since the beginning of the Covid-19 pandemic. Global demand has been impacted by high inflation in major developed markets and geopolitical tensions. The latest trade data release suggests that China’s leaders cannot solely rely on external factors to revive the struggling growth momentum of the world’s second-largest economy. Furthermore, the decline in imports for June was more severe than anticipated, indicating a weakening in local demand.

China Under Pressure

Zhiwei Zhang, the President, and Chief Economist at Pinpoint Asset Management, pointed out that developed countries are consistently showing signs of further weakness, which will likely exert additional pressure on China’s exports for the remainder of the year. Zhang also highlighted the importance of domestic demand in the coming months and raised the question of whether it can rebound without significant government stimulus.

Customs data revealed that China’s exports in June witnessed a staggering 12.4% drop in dollar value compared to the previous year. This decline surpassed expectations, with a Reuters poll projecting a 9.5% decrease, and it represents the largest annual decline since February 2020. Imports also declined, falling by 6.8% in June year-on-year, worse than the expected 4% decline.

China’s customs bureau spokesperson, Lu Daliang, stated at a press conference that the country’s trade still faces considerable pressure in the second half of the year due to high inflation in developed countries and geopolitical factors.

China’s exports tumble as global economy wobbles

Ongoing Negotiations

Despite the challenges, there is a growing divergence in China’s trade patterns. The customs bureau highlighted that trade with Southeast Asian economies and its “Belt and Road” partners has outperformed trade with the United States and the European Union. China is currently engaged in negotiations with the Association of Southeast Asian Nations (ASEAN) to strengthen their free-trade area partnership and fully implement the Regional Comprehensive Economic Partnership, a trade bloc that includes Australia, Japan, South Korea, New Zealand, and the 10 ASEAN member states.

In June, China’s exports to the United States plummeted by 24% to $42.7 billion year-on-year, while imports declined by 4% to nearly $14 billion. China’s Exports to the ASEAN bloc fell by 17% to $43.3 billion, and imports decreased by 4% to $34.1 billion.

China’s trade with “Belt and Road” countries experienced slower growth in the first half of the year, expanding by 9.8% compared to the previous year, down from a 13.2% pace in the first five months.

Leaving the worst behind

Although the decline in foreign demand has been severe, Zichun Huang, a China economist with consultancy Capital Economics, believes that the worst may be behind them. Huang suggests that mild recessions in developed economies are unlikely to significantly impact Chinese exports, and the growth of green technology shipments, including Chinese-made electric vehicles, batteries, and solar panels, may contribute to a return to export growth.

The Need for Policy Support

Economist Zhou Hao from Guotai Junan International emphasized the need for policy support to boost domestic demand, given the persistent challenges in the external sector. Chinese Premier Li Qiang has indicated that policy support will be targeted and implemented in a timely manner to stabilize growth, ensure employment, and mitigate risks. The People’s Bank of China and the National Financial Regulatory Administration recently announced an extension of loan relief for certain developers, aiming to guarantee the completion of ongoing construction projects.

China’s annual producer prices have continued to decline for the ninth consecutive month, while consumer prices remained unchanged in June. These figures highlight the significant challenges China faces in reviving demand and achieving its growth target of around 5%.

Source: CNBC
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