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.

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.

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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 second 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.

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.

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“Countries like those in Asean are increasing their exports to US and EU, while increasing their imports from China, and there is a potential turbulent industrial chain transfer taking place behind the trend, and this is detrimental to China’s exports in the long term,” Mao said.

China should, therefore, continue to expand its economic relations with European countries amid rising tensions with the US, he added.

For Chinese imports, despite the sharp decline in terms of value, the quantity of key commodities – such as iron ore and oil – increased in July compared to a year earlier due to a higher base of prices last year, said Ding Shuang, chief Greater China economist at Standard Chartered Bank.

“Although we have always said that domestic demand is insufficient, it seems that domestic demand is still better than external demand, and is likely to continue to outperform external demand in the second half,” he said.

“In terms of [economic] growth, it will make exports a bigger drag.”

Zhang Zhiwei, chief economist at Pinpoint Asset Management, said if both imports and exports continue to weaken in the coming months, achieving the modest annual growth target would not be guaranteed.

Gary Ng, senior economist at Natixis, said the rebound in imports and domestic demand is still weaker than expected.

“The problems in real estate, infrastructure, and consumer sentiment are still challenging,” Ng said.

“I would not be surprised to see an annual decline of China’s exports and imports in 2023 for the first time since 2016.”