Daily Management Review

China's Trade Fell Sharply In December, Casting Doubt On The Country's Growth Prospects In 2023


China's Trade Fell Sharply In December, Casting Doubt On The Country's Growth Prospects In 2023
China's exports fell sharply in December as global demand cooled, raising concerns about the country's economic recovery this year, but a more modest drop in imports reinforced views that domestic demand will gradually recover in the coming months.
While imports are expected to rise on the back of pent-up demand after China dropped its tough COVID-19 measures in December, exports are expected to fall well into the new year as the global economy approaches recession.
"The weak export growth highlights the importance of boosting domestic demand as the key driver for the economy in 2023," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding markets expect Beijing to announce more policies to support consumption.
Exports fell 9.9% year on year in December, following an 8.7% drop in November, but slightly exceeding expectations, according to customs data released on Friday. The decline was the steepest since February 2020.
Outbound shipments to the United States fell 19.5% in December, while shipments to the EU fell 17.5%, according to calculations by the media based on official data.
Despite a sharp drop in shipments in recent months, China's total exports are expected to rise 7% in 2022, thanks to strong trade with Southeast Asian nations and an export boom of new energy vehicles. Nonetheless, growth was a far cry from the 29.6% increase predicted for 2021.
Imports fell 7.5% last month, down from 10.6% in November and better than the forecast 9.8% drop.
China's trade surplus in 2022 reached an all-time high of $877.6 billion, the highest since records began in 1950, up from $670.4 billion in 2021.
Improving domestic consumption is critical to Beijing's economic recovery plans, and there is a lot of ground to make up: imports rose only 1.1% last year, compared to 30% growth in 2021.
China's coal and copper purchases fell in December as industrial activity slowed due to an increase in COVID-19 infections.
Policymakers have pledged to increase economic support in order to support growth and mitigate disruptions caused by the abrupt end of COVID-19 curbs.
Measures to alleviate a crippling funding crunch in the property sector, in particular, could boost home sales and industrial material imports ranging from iron ore to copper.
According to Lloyd Chan, senior economist at Oxford Economics, more support for property developers and households is expected, but net trade will continue to be a drag on China's growth this year.
"Any near-term lift is unlikely given weak domestic sentiment and the ongoing COVID surge."
Slowing external demand and rising risks of a global recession, according to China's commerce ministry, are the biggest challenges to the country's trade stabilisation, leaving "arduous tasks."
According to an official factory activity survey, a sub-index of new export orders has been in contraction territory for 20 months in a row.
However, the ministry reported that major exporting provinces have seen an increase in new orders. After three years, Chinese authorities have finally lifted anti-virus restrictions that had disrupted port logistics and forced the closure of factories in key manufacturing hubs.
According to a Reuters poll, analysts expect China's economic growth to rebound to 4.9% in 2023 before levelling off in 2024.
Due to widespread lockdowns, the economy is expected to grow at only 2.8% in 2022, well below the official target of around 5.5%. On January 17, data for the fourth quarter and 2022 gross domestic product (GDP) will be released.
Kristalina Georgieva, Managing Director of the International Monetary Fund, said on Thursday that she expected China to become a net contributor to the global economy by mid-2023, and urged Beijing to stick to its earlier zero-COVID policy.
Bank of America analysts predict that China's consumption will rebound "faster and sharper" than the rest of Asia.
However, some manufacturers are still concerned about the future.
Jin Chaofeng, whose company in Hangzhou on China's east coast exports outdoor rattan furniture, said he has no plans for market expansion or hiring in 2023.
"With the lifting of COVID curbs, domestic demand is expected to improve but not for exports...," he said.
"With no signs of the ending of the Russia-Ukraine war or crucial improvement in China-U.S. relations, this year's exports may be worse than 2022," Jin said, adding his company has been reducing inventories over recent months.