Summary: 

  • China’s Oct exports, imports shrink unexpectedly
  • Frail data further blow to struggling economy
  • Global recession risks, COVID curbs in China darken outlook
  • Analysts expect further weakness in exports and imports

China’s exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020, as a perfect storm of COVID curbs at home and global recession risks dented demand and further darkened the outlook for a struggling economy.

The bleak data highlights the challenge for policymakers in China as they press on with pandemic prevention measures and try to navigate broad pressure from surging inflation, sweeping increases in worldwide interest rates and a global slowdown.

Outbound shipments in October shrank 0.3% from a year earlier, a sharp turnaround from a 5.7% gain in September, official data showed on Monday, and well below analysts’ expectations for a 4.3% increase. It was the worst performance since May 2020.

The data suggests demand remains frail overall, and analysts warn of further gloom for exporters over the coming quarters, heaping more pressure on the country’s manufacturing sector and the world’s second-biggest economy grappling with persistent COVID-19 curbs and protracted property weakness.

Chinese exporters weren’t even able to capitalise on a prolonged weakening in the yuan currency since April and the key year-end shopping season, underlining the broadening strains for consumers and businesses worldwide.

The yuan on Monday (7/11/22)  eased 0.4% from a more than one-week high against the dollar reached in the previous session, as the weak trade data and Beijing’s vow to continue with its strict zero-COVID strategy hurt sentiment.

“The weak export growth likely reflects both poor external demand as well as the supply disruptions due to COVID outbreaks,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing COVID disruptions at a Foxconn factory, a major Apple supplier, as one example.

Apple Inc (AAPL.O) said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-blighted Zhengzhou plant.

“Looking forward, we think exports will fall further over the coming quarters… We think that aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into a recession next year,” said Zichun Huang, economist at Capital Economics.

Growth of auto exports in terms of volume also slowed sharply to 60% year-on-year from 106% in September, according to Reuters calculations based on customs data, reflecting a transition from demand for goods to services in major economies.

Overall exports to China’s major markets of the United States and European Union also slumped in October, off 12.6% and 9% year-on-year, respectively.

DOMESTIC WOES HAMPER GROWTH

Almost three years into the pandemic, China has stuck to a strict COVID-19 containment policy that has exacted a heavy economic toll and caused widespread frustration and fatigue.

Feeble October factory and trade figures suggested the economy is struggling to get out of the mire in the last quarter of 2022, after it reported a faster-than-anticipated rebound in the third quarter.

The Ukraine war, which sparked a surge in already high inflation globally, has added to geopolitical tensions and further dampened business activity.

Chinese policymakers pledged last week to prioritise economic growth and press on with reforms, easing fears that ideology could take precedence as President Xi Jinping began a new leadership term and disruptive lockdowns continued with no clear exit strategy in sight.

Tepid domestic demand, partly weighed down by fresh COVID curbs and lockdowns in October, hurt importers.

Inbound shipments declined 0.7% from a 0.3% gain in September, below a forecast 0.1% increase, marking the weakest outcome since August 2020.

The harsh impact on demand from strict pandemic measures and a property slump was also highlighted in a broad range of Chinese imports; purchases of soybeans declined to eight-year-lows last month while copper imports fell and coal imports slackened after hitting a 10-month high in September.

On top of the global slowdown, frail domestic consumption will put more strain on China’s economy for a while yet, analysts say.

“Insufficient domestic demand is the main constraint on China’s short-term recovery and long-term growth trajectory,” said Bruce Pang, chief economist at Jones Lang Lasalle.

Source: Reuters

 


 

China relies on economic stimulus and sees “upward trend”

In view of the gloomier economic prospects, China is counting on further start-up aid for the economy. Beijing leaders will push ahead with implementing a package of measures to stabilize the economy to achieve better results later in the year, Premier Li Keqiang announced.

In the past three quarters, the economy has grown by three percent and is stabilizing in an “uptrend”. Creating new jobs is also a priority, Li said at a meeting with the head of the International Monetary Fund (IMF), Kristalina Georgieva, on Saturday (12/11/22) on the sidelines of the ASEAN summit in Cambodia, the Chinese foreign ministry said on Sunday (13/11/22).

 China’s government is targeting gross domestic product (GDP) growth of around 5.5 percent this year. Last year, an increase of 8.1 percent was achieved, as the world export champion benefited from the recovery of the global economy from the Corona crisis.

But although the government has been supporting the economy with numerous measures since the end of May, the rigid zero-Covid policy and the global economic slump have recently slowed down world trading power. In October, for the first time in almost two and a half years, both exports and imports fell – another sign that the once booming economy is getting into trouble.

Domestic demand was weighed down by the ailing real estate market and, above all, by new corona lockdowns. In view of this, the government only relaxed its strict corona course on Friday (11/11/22).

Source: (German language) Handelsblatt