China’s exports rapidly declined last month as part of an economic downturn unseen since the beginning of the COVID-19 pandemic.
Chinese policymakers are under pressure to implement new stimulus measures in light of the challenges that the global economy is currently experiencing.
The first quarter saw a momentary pickup in China’s economic recovery following the pandemic, but this has fallen consistently since, with analysts predicting a gloomy outlook for the rest of the year. Progressively weakened global demand has also stifled the country’s factory output.
Data from China’s Customs Bureau on July 13 showed exports dropped by 12.4 percent year-on-year in June. This was preceded by a 7.5-percent drop in May.
Imports were also affected, having contracted by nearly 7 percent, at a much higher rate than the anticipated 4 percent decline, following May’s 4.5 percent drop.
According to Zichun Huang, China economist at Capital Economics, the situation will likely worsen before it gets better.
“The global downturn in goods demand will continue to weigh on exports, with a further decline in exports seen likely before they bottom out towards the end of the year. But the good news is that the worst of the decline in foreign demand is probably already behind us,” she said.
According to Lyu Daliang, a spokesperson for the General Administration of Customs, China’s poor export performance was due to a weak global economic recovery which has affected global trade and investment. He also blamed rising unilateralism, protectionism, and geopolitics.
Exports to the United States have been most affected this year, with diplomatic tensions over chip technology and other issues being obstacles to trade.
Chinese exports to Russia, on the other hand, experienced a boost, albeit at a moderate level.
Hopes for Quick Post-COVID Recovery Fade
China’s prospects for a quick rebound after implementing some of the harshest COVID-related lockdown measures have dwindled significantly, having dealt a heavy blow to its economy last year. This is now exacerbated by failing exports, which account for around 20 percent of China’s economy, as well as a troubled property sector, which accounts for just over 30 percent.
After failing to reach last year’s GDP growth target by a large margin, the Chinese regime has now set a more conservative target of around 5 percent for this year.
“Soft exports and deflationary pressure will add to calls for stimulus, but I don’t think the scale of support will be enormous. This is owing to fiscal constraints on the government, they need to borrow more to fund larger expenditure,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
Despite promises by Chinese Premier Li Qiang, who took up his post in March, to implement new policy measures to boost demand and invigorate markets, little has been done to materialize this, causing investors to become more anxious.
Shortly after the data was released, the Chinese yuan slipped against the dollar. According to analysts, however, the drop is likely to be limited, as investors gear up for potential action on stimulating the economy after next month’s Politburo meeting.
“The big question in the next few months is whether domestic demand can rebound without much stimulus,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Production has taken a serious hit in recent months, with factory activity being low enough to drastically affect consumer prices near the brink of deflation. It has also led to producer prices falling at the fastest rate in over seven years.
Semiconductor imports dropped by nearly 14 percent last month. Although lower than the previous month’s drop of just over 15 percent, this indicates a downturn among Chinese manufacturers to re-export components in finished goods.
There has also been a slowing demand for raw materials. Copper imports showed an over 16-percent drop in June, compared to the same month the year before.
Reuters contributed to this article.