China’s exports suffer their biggest drop since the start of the pandemic

The dollar-denominated value of trade between China and the rest of the planet contracted 13.6% year-on-year in July, according to official data published by the Asian country’s General Administration of Customs. Using the US currency as a reference, exports plummeted 14.5% year-on-year, while imports fell 12.4% from a year earlier. The figures are worse than analysts’ expectations, who forecast a 12.5% ​​decline in foreign sales and a 5% decline in purchases of foreign goods. The Chinese economy slowed down in the second quarter precisely as a result of a drop in internal and external demand, which is why the numbers revealed this Tuesday have raised doubts about whether the Asian giant will be able to meet its annual growth target. that the Government set at a prudent 5% for 2023.

China’s exports helped sustain its economy during nearly three years as the country closed off from the world to contain the spread of covid. However, galloping inflation worldwide, the rise in interest rates by some central banks, the slowdown in growth in the major economies, as well as the weakening of the yuan against the dollar have curbed demand for Chinese products in this 2023. The value of foreign sales has decreased in year-on-year terms in each of the last three months, with a decrease of 12.4% in June and 7.5% in May. The 14.5% drop in July marks the biggest drop since February 2020, shortly after the outbreak of the pandemic in the city of Wuhan.

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“Chinese exports suffered the largest contraction in July since the start of the pandemic. But the recent declines mostly reflect lower prices than volumes, which remain well above their pre-pandemic trend,” Capital Economics analysts write in a note. However, they point out: “Given the evidence that global demand is in decline, we are not convinced that this strength (from China) will continue.” The reaction of the markets to the publication of the bad data on exports has not been long in coming: the Chinese yuan fell slightly against the dollar during the day and the Hong Kong Stock Exchange dropped more than 1.5%.

Exports to the United States – the main destination for Chinese goods – plummeted 23.1% year-on-year, while shipments to the European Union fell 20.6%. The data is consistent with rising diplomatic tensions over semiconductor technology and continued calls for “diversification” by Washington and Brussels.

Another factor to consider is that the country’s manufacturing activity has also contracted for four consecutive months, according to the Purchasing Managers’ Index (PMI). Some analysts believe that this figure reflects that the export environment, one of the expected drivers of economic recovery, may be weakening.

For its part, the decline in imports in July is the steepest since January this year, when many factories and stores on the Chinese mainland were forced to close due to the wave of covid-19 infections that followed the removal of sanitary restrictions the previous month. The downward trend in the value of imports has continued since March. Therefore, Beijing is looking for ways to boost domestic consumption, although without loosening monetary policy too much, so as not to cause large capital outflows. Last week, the National Development and Reform Commission, the state’s main planning body, announced that it would adopt stimulus measures, although for the moment they have been limited to proposals to expand consumption in the automobile, real estate and services sectors.

Xu Tianchen, chief economist at the Economist Intelligence Unit, quoted by Reuters, believes that the import figure was worse than expected because “economists may be misinterpreting some factors, such as underlying commodity prices, that dominate Chinese imports.” . “For example, China is importing more oil, but at lower prices, so the volume of crude accelerated in July, but the value of imports slowed. A similar logic applies to cereals and soybeans”, explains this expert.

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