The Background
The August trade numbers were anticipated to be slightly worse by economists. According to a Reuters survey, exports were expected to have decreased by 9.2 percent in August compared to the previous year, while imports were projected to have dropped by 9 percent. In July, exports had experienced a significant decline of 14.5 percent compared to the previous year.
Geopolitical tensions and intensified trade disputes, especially between the United States and China, have raised concerns among multinationals, particularly large retailers in the United States, regarding their reliance on China in their supply chains. These concerns have been further exacerbated in recent years.
China’s stringent “zero Covid” measures, including extended lockdowns in major industrial centers and ports like Shanghai, Shenzhen, and Guangzhou, have resulted in shipping delays and the departure of expatriate managers for multinational companies. However, as the pandemic concerns diminish, households worldwide, including in China, have shifted their spending habits towards travel, dining out, and other services. During the pandemic, many households stockpiled manufactured goods, often from China, as China possesses the world’s largest factory sector.
Why It Matters
Export and import statistics provide early insights into the performance of the Chinese economy in the preceding month. China heavily relies on maintaining large trade surpluses to generate millions of jobs, which has become especially vital this year due to the surge in youth unemployment. With a significant slowdown in the housing market, exports have become even more crucial for China, following years of rampant speculation that led to soaring apartment prices in several Chinese cities.
The latest data release suggests that the overall demand for China’s goods may have reached its lowest point. An economist at Oxford Economics, Louise Loo, stated that the “less bad” performance in exports and imports reinforces the belief that July was likely the peak of economic downturn in China. It’s important to note that although China’s exports have been weak, they are declining from a historically high level achieved during the pandemic, as China continues to maintain its status as an industrial powerhouse.
According to a recent research note by China Beige Book, export orders from the United States and Europe are not promising, but solid growth is observed in terms of Asia and other regions.
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