China’s Export Gain Momentum, but Weak Foreign Demand Adds Stress to Trade

China's exports gain steam but outlook cloudy as global growth cools

China’s export growth surprisingly picked momentum. In July, exports increased by approximately 18%, the fastest rate this year. Official customs data released a few weeks back showed a 17.9% increase in July, exceeding analysts’ expectations for a 15.0% increase. 

It provides a boost to the economy as it struggled to recover from a Covid-induced slump, but weakening global demand could start to weigh on shipments in the coming months. 

A cause for concern 

Many analysts predicted that china’s export would decline as the global economy, weighed down by soaring prices and rising interest rates, entered a serious slowdown. 

According to a global factory survey, demand weakened in July, with orders and output indexes falling to their lowest levels since the COVID-19 pandemic began in early 2020. 

China’s official manufacturing survey showed activity contracted last month, raising concerns that the economy’s recovery from spring lockdowns will be slower and more difficult than expected. 

A ray of hope for the Chinese economy 

Outbound shipments have been one of the few bright spots in the Chinese economy in 2022, as widespread lockdowns have taken a heavy toll on businesses and consumers, and the once-mighty property market has lurched from crisis to crisis. 

Zhiwei Zhang, chief economist at Pinpoint Asset Management pointed out that “China’s export growth surprised again on the upside. (It) continues to help China’s economy in a difficult year as domestic demand remains sluggish,”. 

There were signs that COVID-related transportation and supply chain disruptions were easing, just in time for shippers to prepare for peak year-end shopping demand. 

According to data released by the domestic port association, foreign trade container throughput at eight major Chinese ports increased 14.5% in July, up from 8.4% in June. 

Container throughput at the COVID-affected Shanghai port reached a new high last month. 

‘July exports may also have been buoyed by pent-up demand from Southeast Asia as supply snarls eased and factories there ramped up production,’ Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. 

Moreover, amid negative real interest rate and surging inflation, some European and U.S. customers may have frontloaded orders to ensure they had goods on hand with lower costs, he added. 

“Still, while export growth remained high, mainly backed by price factors, the volume of exported goods dropped in July,’’ said Chang Ran, a senior analyst at Zhixin Investment Research Institute. 

“Looking ahead in the second half of the year, exports are expected to be resilient in the short run, but weakening external demand may pressure them in the fourth quarter,” Chang said. 

Chinese exporters are facing mounting headwinds 

“I am very worried about the impacts of soaring U.S. inflation and rising China-U.S. tensions on our export orders,” Jin Chaofeng, general manager at Nicesoul, one of Amazon’s top rattan outdoor furniture sellers. 

“If retaliatory tariffs like those in the Trump-era happened again, it would deal a blow to our businesses,” Jin said, adding the exports value of his company jumped 70-80% in July year-on-year. 

Still tepid imports 

Following a shaky second quarter, most analysts expected China’s import momentum to moderate in the second half of the year, fueled by construction-related equipment and commodities as the government ramps up infrastructure spending. 

However, imports were lower than expected last month, indicating that domestic demand remains weak. 

Imports increased 2.3% year on year, compared to 1% in June and falling short of the 3.7% increase predicted. 

“Despite an uptick in domestic demand amid loosening COVID control measures, the weak performance of the production side dragged on imports,” said Xu Shuzheng, a researcher at CITIC Securities, adding that COVID flare-ups may hinder the economy’s recovery. 

  • In July, crude oil imports fell 9.5% year on year as fuel demand recovered more slowly than expected due to new virus outbreaks. 
  • The volume of imported integrated circuits, a major Chinese import, fell 19.6% in July compared to the previous year. 
  • This could be another red flag for exports, as many of the country’s imports are components of goods that are then re-exported. 
China posted a record $101.26 billion trade surplus last month, well above the $90.0 billion surplus analysts had expected. 

The country’s top economic planner had given verdict that during their last week, they are in the “critical window” of stabilization and recovery, and the third quarter is “vital.” 

To conclude 

Top leaders recently indicated that they were willing to miss the government’s growth target of around 5.5% for 2022, which analysts said was looking increasingly improbable after the economy narrowly avoided contracting in the second quarter. 

The International Monetary Fund cut its 2022 growth forecast for China to 3.3% from 4.4% in April, citing COVID lockdowns and the worsening property sector crisis. 

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