China’s exports fell by 14.5 per cent in July compared with a year earlier, while imports fell by 12.4 per cent last month
- China trade: de-risking, reshoring efforts chip away at exports as July shipments fall at steepest pace since early 2020
- Falling exports will lead to weaker production, while slumping imports highlight lower domestic demand, which is set to test China’s 2023 growth target, analysts said
China reported a deeper-than-expected drop in both exports and imports in July, raising concerns beyond the current wave of global economic downturn, as the trend of supply chain relocation consolidates.
The slump points to worsening overall prospects, analysts said, with exports expected to contract at a similar scale until the end of the year, meaning growth will take time to rebound.
The broad-based fall also exposes China’s mounting challenges as it struggles to revive domestic demand and reboot business sector confidence amid a sputtering post-pandemic recovery, threatening the annual growth target of around 5 per cent.
Exports fell for the third consecutive month, with the 14.5 per cent drop from a year earlier to US$281.76 billion marking the deepest decline since February 2020, according Chinese customs figures released on Tuesday.
Imports, meanwhile, fell by 12.4 per cent from a year earlier to US$201.16 billion, with China’s total trade surplus rising to US$80.6 billion in July compared to US$70.62 billion in June.
Millions of small business owners are struggling to keep their firms afloat due to an absence of sustainable income growth prospects, among them a Shenzhen-based housewares exporter surnamed Luo.
“I’m pulling out my own savings to run my company now, and with it I can still pay for the employee salaries,” Luo said.
“But I panic a lot, when will there be an end? Will it be a bottomless pit?”
China, though, is not alone, with all of Asia’s major exporting powerhouses suffering from a slump in trade in recent months due to the broad global economic slowdown and weak consumer demand.
In July, South Korea recorded a 16.5 per cent year-on-year drop in exports, which have declined for 10 months in a row.
Taiwan’s exports also plunged by 10.4 per cent in July, marking the 11th consecutive monthly decline and the steepest slump in almost 14 years.
Shipments from Vietnam also declined for the fifth straight month in July after falling by 2.1 per cent.
While China’s status as the world’s largest exporter – which was further enhanced during the pandemic thanks to a more resilient manufacturing sector – will remain safe in the coming years, the impact of “de-risking” efforts by the West are only going to increase, industry insiders and economists said.
Luo said her clients in the United States are facing increasing political pressure to reshore their Chinese sourcing to other countries, including Mexico.
“We are also feeling the changes of attitude of our US clients this year,” she added.
“It used to be business is business and to seek maximal profits, but this year they have seen growing pressure, politically from the US government, to reshore products to countries or relocate supply chains to countries like Mexico with tax support. The US used to be the most open market for us, but not now.”
Economists from Nomura said a worsening export contraction means weaker production, while rapidly deteriorating imports reflects weaker demand within China.
They added that the latest balance of payments data showed that China’s foreign direct investment (FDI) plunged to a historical low of US$4.9 billion in the first quarter, with the sharp decline pointing to a dire picture for exports in coming years.
“The plunging FDI may have significantly weighed on the export sector, as exports by foreign companies operating in China account for about 30 per cent of China’s total exports,” they said.
In July, China’s exports shrank among most of its major trade partners, with shipments to the Association of Southeast Asian Nations (Asean) – its largest trade partner – falling by 21.43 per cent compared to a year earlier, marking the second consecutive monthly decline.
Exports to the European Union, meanwhile, declined by 20.62 per cent, year on year, while shipments to the US dropped for the 12th consecutive month after falling by 23.12 per cent.
Mao Zhenhua, founder of China Chengxin Credit Rating Group, said last month that China should stay alert against the so-called China plus strategy – a US-led movement that involves diversifying China-centric supply chains to other countries.
“At present, this trend is strengthening rather than weakening. As the ‘plus’ keeps getting bigger, it will further weigh on China’s export share in the future,” said Mao, who is also co-director of Renmin University’s Institute of Economic Research.
He added that although the supportive role of the Asean bloc and other developing economies is increasing against subdued demand from the US and European Union, it is “dangerous” for China to only focus on a select group of emerging economies.