China trade: ‘sharp decline’ in exports as growth slows to lowest in 2 years as zero-Covid dents outlook
- Exports grew by 3.9 per cent in April compared with a year earlier, down from 14.7 per cent growth in March, while imports remained flat
- China’s imports from Russia soared by 56.6 per cent from a year earlier to a record US$8.8 billion in April, although exports fell by 25.9 per cent to US$3.8 billion
Strict zero-Covid controls contributed to sending China’s export growth to its lowest rate in almost two years in April, with hopes of recovery set to face multiple headwinds from prolonged lockdowns, global inflation and geopolitical tensions.
And China’s export momentum is likely to remain weak in the coming months, with domestic coronavirus control-fuelled supply chain disruptions set to continue into June, according to Tommy Wu, lead China economist at Oxford Economics.
External demand will continue to be weighed by elevated global inflation, as well as uncertainty created by the Russia-Ukraine war, including impacts of formal and informal sanctions
“External demand will continue to be weighed by elevated global inflation, as well as uncertainty created by the Russia-Ukraine war, including impacts of formal and informal sanctions,” Wu said.
Overall, China’s imports remained flat in April from a year earlier at US$222.5 billion, compared with a fall of 0.1 per cent in March, although this was also better than expected.
China’s total trade surplus was US$51.12 billion in April compared to US$47.3 billion in March.
“The sharp decline of export growth is mostly driven by the lockdowns in many cities, including Shanghai. Export growth may stay weak in May, as disruptions to supply chains force manufacturers to lower output,” Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“Trade is sensitive to the ‘zero tolerance’ policy. The Politburo meeting on May 5 emphasised the importance of managing risk of virus spreading to China through cargo. This indicates the inspection of imports will likely become tougher, which may slow imports further, and affect exports as well.”
Externally, the Russia-Ukraine war has driven up global commodities prices, forcing the world’s largest buyers of iron ore, crude oil, soybeans and many other products to pay more, while ongoing tensions with Washington and Brussels have blurred the outlook for exports.
Wu warned that China’s “dynamic zero Covid” strategy will continue to weigh on spending and sentiment this year, with economic growth in 2022 expected to be 4 per cent, down from a previous estimate of 4.8 per cent.
What is the CPTPP and why is China eager to join?
“The effect of the stimulus will largely depend on the scale of Covid outbreaks and whether potential lockdowns will be swift as the government continues to fine-tune its Covid policy,” he added.
Along with the generally weak trade data, China’s yuan lost more ground, with onshore trading on Monday falling to weaker than 6.7 per US dollar for the first time since 2020.
“Since exports have been the single largest growth driver since the spring of 2020, a sharp slowdown in export growth would substantially increase the downward pressure on GDP growth and make achieving the ‘around 5.5 per cent’ GDP growth target for 2022 increasingly difficult,” said economists at Nomura led by chief China economist Lu Ting.
Nomura expects China’s export growth to drop to zero in May before potentially contracting due to the current Omicron wave, the stringent containment measures, falling external demand and the loss of new export orders to other regions.
Overall, the 10 countries of the Association of Southeast Asian Nations (Asean) retained their place as China’s largest trade partner in April, followed by the European Union and the US.
The blame rests partly with China’s Covid-19 outbreak, which has led to manpower shortages and bottlenecks in the logistics sector. But the extent of these disruptions shouldn’t be overplayed
China’s exports to the Asean countries grew by 7.6 per cent compared with a year earlier to US$44.2 billion in March, while imports rose by 4.5 per cent to US$32.7 billion.
China’s imports from the United States dropped by 1.2 per cent from a year earlier to US$13.7 billion in April, while exports grew by 9.4 per cent to US$46 billion.
In April, China’s trade surplus with the US widened by 14.7 per cent from a year earlier to US$32.2 billion, up from US$32.086 billion in March.
“The blame rests partly with China’s Covid-19 outbreak, which has led to manpower shortages and bottlenecks in the logistics sector. But the extent of these disruptions shouldn’t be overplayed,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Hopes that exports will rebound once the virus situation improves are likely to be disappointed. Instead, we expect export volumes to fall further over the coming quarters.”
