Home Business Chinese overseas’ trade staggers riskily as demand wavers

Chinese overseas’ trade staggers riskily as demand wavers

In May, China experienced a more significant contraction in exports than anticipated, while imports continued to decline, signalling a bleak outlook for global demand, particularly from developed markets.

These developments have raised concerns about the fragile state of the economic recovery.

During the first quarter, the world’s second-largest economy surpassed growth expectations due to robust services consumption and a backlog of orders resulting from years of disruptions caused by the COVID-19 pandemic.

However, factory output has slowed down as rising interest rates and inflation dampen demand in the United States and Europe.

According to data from China’s Customs Bureau released on Wednesday, exports plummeted by 7.5% year-on-year in May.

This decline was significantly larger than the projected 0.4% fall and marked the sharpest drop since January. Meanwhile, imports contracted by 4.5%, which was slower than the anticipated 8.0% decline but still reflected a continuation of the downward trend observed in April.

Zhiwei Zhang, the chief economist at Pinpoint Asset Management, emphasized that the weak exports highlight China’s need to rely on domestic demand as the global economy slows down.

As global demand is expected to weaken further in the second half of the year, there is increasing pressure on the Chinese government to boost domestic consumption for the remainder of the year.

The severity of the trade downturn is evident when comparing the current figures to the period when the port of Shanghai, China’s busiest port, was closed due to strict COVID-19 restrictions a year ago.

These statistics add to a growing list of indicators suggesting that China’s post-pandemic economic recovery is losing momentum rapidly, thereby bolstering the case for additional policy stimulus. The release of this data led to a decline in Asian stocks, as well as in the value of the yuan and the Australian dollar, which is sensitive to fluctuations in Chinese demand.

The once-vibrant stock market rally in China has also faded as small-time investors have turned bearish on equities and instead sought safer assets amid the stuttering economic recovery.

China’s economy has been hit by the dual impact of weakening domestic and international demand, with the consequences reverberating throughout the region. Topical South Korean data exposed a 20.8% decline in consignments to China in May, shaping a full year of monthly deteriorations. Korean semiconductor exports, a key component of final manufacturing, witnessed a significant drop of 36.2%, indicating weak demand for these crucial components.

Imports of semiconductors in China witnessed a decline of 15.3%, indicating a weakened market for the export of consumer electronics that depend on these components.

Moreover, demand for raw materials weakened overall, with coal imports receding from the 15-month high reached in March, driven by reduced appetite from the power and steel sectors. Additionally, copper imports in May declined by 4.6% compared to the previous year.

The official Purchasing Managers’ Index (PMI) released last week in China indicated that factory activity contracted at a faster pace than expected in May. The subindexes of the PMI also revealed that factory output shifted from expansion to contraction, while new orders, including new export orders, declined for the second consecutive month.

Although economic growth exceeded expectations in the first quarter, analysts are now downgrading their forecasts for the remainder of the year as factory output continues to slow down.

The government has established a conservative target of approximately 5% for GDP growth this year, following a notable deviation from the goal set for 2022.

According to Julian Evans-Pritchard, the head of China economics at Capital Economics, there is an expectation of further decline in exports before reaching a bottom point later in the year.

Although interest rates in countries outside of China are approaching their maximum levels, the delayed effects of substantial rate increases are projected to diminish economic activity in developed nations in the coming months, potentially leading to mild recessions in key sectors.

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