Daily Management Review

China's Trade Surprisingly Declines As COVID Restrictions And The Global Slowdown Shock Demand


11/07/2022




China's Trade Surprisingly Declines As COVID Restrictions And The Global Slowdown Shock Demand
The first concurrent decline in China's exports and imports since May 2020 occurred in October as a result of an unfavorable confluence of domestic COVID restrictions and risks associated with a potential global recession, which further dimmed the outlook for the country's already precarious economy.
 
The dismal data emphasizes the difficulty facing Chinese policymakers as they continue to implement pandemic prevention measures while attempting to balance widespread pressure from surging inflation, sweeping increases in global interest rates, and a global slowdown.
 
Official data released on Monday revealed that outbound shipments decreased by 0.3% in October compared to a year earlier, which was a sharp decline after a 5.7% increase in September and well below analysts' expectations of a 4.3% increase. Since May 2020, it was the worst performance.
 
Overall, the data indicate that demand is still brittle, and analysts predict further doom for exporters in the upcoming quarters, adding to the pressure on the nation's manufacturing industry and the world's second-largest economy, which is already struggling with COVID-19 curbs that have persisted for a long time and persistent real estate weakness.
 
The fact that Chinese exporters were unable to benefit from the ongoing depreciation of the yuan since April and the crucial holiday shopping season highlights the growing pressures facing consumers and businesses around the world.
 
On Monday, the yuan weakened 0.4% from a more than one-week high against the dollar reached in the previous session as sentiment was dampened by the weak trade data and Beijing's commitment to maintaining its stringent zero-COVID policy.
 
"The weak export growth likely reflects both poor external demand as well as the supply disruptions due to COVID outbreaks," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing COVID disruptions at a Foxconn factory, a major Apple supplier, as one example.
 
Following a significant production reduction at the virus-ravaged Zhengzhou plant, Apple Inc. stated that it anticipates lower-than-anticipated shipments of the high-end iPhone 14 models.
 
"Looking forward, we think exports will fall further over the coming quarters... We think that aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into a recession next year," said Zichun Huang, economist at Capital Economics.
 
According to calculations by Reuters based on customs data, the growth of auto exports in terms of volume also decreased sharply, to 60% year-over-year from 106% in September, reflecting a shift in major economies' demand from goods to services.
 
In October, overall exports to China's two biggest export destinations—the United States and the European Union—fell by 12.6% and 9%, respectively, year over year.
 
Nearly three years into the pandemic, China has maintained a stringent COVID-19 containment policy that has taken a significant economic toll and generated a great deal of annoyance and weariness.
 
After reporting a quicker-than-expected rebound in the third quarter, the economy appeared to be struggling to emerge from the mire in the last quarter of 2022, according to weak October factory and trade figures.
 
Geopolitical tensions have increased as a result of the Ukraine war, which also caused an increase in already high global inflation. This has slowed down business activity even more.
 
Last week, Chinese policymakers vowed to prioritize economic growth and move forward with reforms, allaying concerns that ideology might take precedence as President Xi Jinping started a new term in office and disruptive lockdowns persisted without a clear end in sight.
 
Importers suffered from sluggish domestic demand, which was hampered in part by new COVID curbs and lockdowns in October.
 
The weakest result since August 2020 was a 0.7% decline in inbound shipments following a 0.3% increase in September. This was below the forecasted 0.1% increase.
 
A wide range of Chinese imports also demonstrated the harsh impact that strict pandemic measures and a real estate slump had on demand; purchases of soybeans dropped to eight-year lows last month, while imports of copper dropped and coal imports slowed after reaching a 10-month high in September.
 
Frail domestic consumption will continue to strain China's economy in addition to the global slowdown for some time, analysts predict.
 
"Insufficient domestic demand is the main constraint on China's short-term recovery and long-term growth trajectory," said Bruce Pang, chief economist at Jones Lang Lasalle.
 
(Source:www.economictimes.com)