Daily Management Review

May Saw A Decline In China's Exports Due To Weak Global Demand


May Saw A Decline In China's Exports Due To Weak Global Demand
With a bleak prognosis for global demand, particularly from developed countries, China's exports decreased much more quickly than anticipated in May while imports continued to decline, casting doubt on the fragile economic recovery.
A backlog of orders following years of COVID interruptions helped the world's second-largest economy grow faster than anticipated in the first quarter, but factory output has slowed as increasing interest rates and inflation restrict demand in the United States and Europe.
According to figures released on Wednesday by China's Customs Bureau, exports fell 7.5% year over year in May, a significant decrease that was bigger than the 0.4% reduction predicted and the greatest drop since January. Imports decreased by 4.5%, less than the predicted 8.0% loss and the 7.9% decline in April.
"The weak exports confirm that China needs to rely on domestic demand as the global economy slows," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "There is more pressure for the government to boost domestic consumption in the rest of the year, as global demand will likely weaken further in the second half."
The data demonstrates the severity of the slowdown by demonstrating that trade was lower even than when Shanghai, China's busiest port, was closed due to tight COVID controls a year earlier.
The statistics also add to a growing body of evidence suggesting China's post-COVID economic recovery is fading rapidly, supporting the need for additional policy stimuli.
Following the release of the data, Asian markets, the yuan, and the Australian dollar all saw losses. The yuan is a commodity currency that is extremely susceptible to changes in Chinese demand.
As small-time investors become pessimistic about equities and increase their bets on safer assets amid a faltering economic recovery, China's post-pandemic market surge has faded.
Faltering demand at home and abroad has had a double-whammy effect on the economy, having repercussions seen throughout the region.
According to figures released by South Korea last week, shipments to China fell 20.8% in May, marking a full year of monthly reductions. Korean semiconductor exports also fell 36.2%, indicating a lacklustre market for final manufacturing components.
As the market for the exports of consumer electronics products that use these components weakened, China's imports of semiconductors decreased by 15.3%.
With imports of coal declining from the 15-month high reached in March and lacklustre demand from the steel and power sectors, demand for raw materials generally decreased. From a year earlier, copper imports decreased 4.6% in May.
Factory activity decreased more quickly than anticipated in May, according to China's official purchasing managers' index (PMI), which was issued last week.
The subindices of the PMI also revealed that manufacturing output changed from expansion to contraction while new orders, including new exports, decreased for a second month.
Analysts are now revising their projections for the remainder of the year downward as manufacturing output slows, despite the fact that economic growth outperformed expectations in the first quarter.
After miserably failing to achieve its 2022 aim, the administration has set a moderate GDP growth target of roughly 5% for this year.
"Looking forward, we think exports will fall further before bottoming out later this year," said Julian Evans-Pritchard, head of China economics at Capital Economics. "Although interest rates outside of China are near a peak, the lagged impact from the sharp rate hikes is set to weaken activity in developed economies later this year, triggering mild recessions in most cases."