China trade: tough times for exporters as ‘only the wearer knows where the shoe pinches’ amid tumbling shipments
- Exports suffered their biggest decline since the start of 2020, while imports also contracted more than expected
- Weak exports, caused by falling global demand, have increased the pressure for Beijing to boost domestic consumption in the rest of the year
A manufacturer and exporter of baking equipment based in Yiwu – home to the world’s largest small commodities market – had high hopes of a strong rebound when China reopened its borders to foreign travellers in January.
But David Fang’s hopes have gradually faded, despite endless streams of foreign importers coming to the city in the eastern Zhejiang province, and he embodies China’s trade outlook after exports tumbled by 12.4 per cent in June compared to a year earlier.
“When the [foreign importers] come back, they have become more sensitive to prices, and they will compare those from 10 suppliers [before placing an order],” Fang said.
“So from the surface, the market is thriving, but in reality, only the wearer knows where the shoe pinches.”
In the first half of the year, China’s exports declined by 3.2 per cent compared to a year earlier, the data released on Thursday showed.
The disappointing figures are yet another indicator of China’s sputtering post-pandemic economic recovery, which has lost momentum in the second quarter.
Beijing has pledged support to the export sector, which has been a major driver of the economy in the past three years, but China is faced with weakening global demand and accelerated supply-chain reshoring led by the United States.
The latest data in the developed countries shows consistent signals of further weakness, which is likely to put more pressure on China’s exports
“The latest data in the developed countries shows consistent signals of further weakness, which is likely to put more pressure on China’s exports in the rest of the year,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“China has to depend on domestic demand. The big question in the next few months is whether domestic demand can rebound without much stimulus from the government.”
Last month, exports to all of China’s major trading partners recorded double-digit declines.
Shipments to the Association of Southeast Asian Nations, which is China’s largest trade partner and one that provided major support to its export sector earlier this year, fell by 16.86 per cent compared to a year earlier.
Exports to the European Union, meanwhile, declined by 12.92 per cent year on year, while shipments to the United States dropped for the 11th consecutive month after falling by 23.73 per cent in June – the sharpest fall since November.
US imports have remained suppressed amid high inflation and a slowing economy, but the decline in purchases from China has been more substantial, with the likes of Mexico and Vietnam taking market share across major consumer products, according to data from the United States International Trade Commission.
In contrast, exports to Russia in June increased by 90.93 per cent compared to the same month last year.
China’s exports are expected to decline further before bottoming out towards the end of the year, according to analysts at Capital Economics, with the global downturn in goods demand set to continue to weigh on exports.
Rising US-China trade frictions will have negative implications for the Asia region, particularly South Korea and Taiwan
“But the good news is that the worst of the decline in foreign demand is probably already behind us. Recessions still loom over developed economies, but these are likely to be mild and have only limited impact on Chinese exports,” the analysts said.
“Meanwhile, shipments of green technology, including Chinese-made electric vehicles, batteries and solar panels, may continue to grow rapidly, helping exports return to growth.”
Lloyd Chan, a senior economist at Oxford Economics, said deteriorating trade relations with the US would add downside risks to the already downbeat outlook for China’s trade this year.
“Rising US-China trade frictions will have negative implications for the Asia region, particularly South Korea and Taiwan.”
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China’s imports, meanwhile, fell by 6.8 per cent in June from a year earlier to US$214.7 billion. In the first half of the year, China’s imports fell by 6.7 per cent compared to the same period last year.
Economists from Goldman Sachs said the import value of commodities declined last month because of falling prices, as the volume growth remained solid.
General Administration of Customs spokesman Lu Daliang said China would be facing more pressure to boost the stable growth of foreign trade in the later half of the year.
“Inflation is still prominent in developed world economies, geopolitical conflicts are still taking place and there is not enough drive for immediate growth in global demand,” he said on Thursday.
Lu added that China’s economy is resilient and revitalising, and that the foreign trade sector would still head towards a positive direction in the longer term.
China’s total trade surplus stood at US$70.62 billion in June, compared to US$65.8 billion in May.
Additional reporting by Kinling Lo
