Daily Management Review

Signals Of More Issues Ahead For Chinese Economy Seen From Its Export Slowdown In July


A slowdown was suggested in the industrial sector in China for the in the second half with an unexpected decline in export growth of the country for the month of July, because of outbreaks of Covid-19, and loss of growth in imports too, even as global commerce is growing with the easing of lockdowns.
Following a quick containment of the pandemic and its fast rollout of vaccines against Cvoid-19 which increased confidence in the economy, the second largest economy of the world was able to recover quickly in the first few months of last year from the pandemic induced slump in its exports. 
However, fresh outbreaks of the disease in tens of Chinese cities, primarily because of the highly transmissible Delta strain of the coronavirus, in July prompted local authorities to impose lock downs in the affected areas within the cities while also ordering Covid-19 testing for millions ordering and imposing temporary shutdowns of some businesses including operations in factories.
Industrial production in some areas such as central China was also affected last month by seasonal floods and bad weather.
The growth in exports in July was only 19.3 per cent year on year compared to a 32.2 per cent year on year growth in the previous month while analysts had expected the July growth to be at 20.8 per cent.
"The pandemic worsened in other Asian developing countries, which may have led to a relocation of trade toward China. But leading indicators suggest exports may weaken in coming months," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Factory output was muted in July by fresh outbreaks of the pandemic in eastern and southern Chinese provinces, the main export hubs of China.
An ongoing semiconductor shortage globally, bottlenecks in logistics, and increased costs for raw material and freight charges also affected Chinese exporters in addition to the impact from the measures imposed to curb the spread of the Delta variant.
"Although orders are recovering, there are too many uncertainties in the second half of the year, like how the domestic epidemic develops and the cost of raw materials. And at the same time, foreign production capacity is slowly picking up," said an exports sales manager based in Suzhou, as quoted in a Reuters report.
Growth in imports in July also slowed down at 28.1 per cent year on year compared to a growth rate of 36.7 per cent year on year in the previous month while analysts had expected a growth rate of 33 per cent in July.
Demand for iron ore, a crucial raw material in steel making, has dropped in recent months in the country.
There was however a rebound in crude oil imports in July form a six-month low in June because of ramping up of output by state-backed refiners following a temporary shut down for maintenance. 
Higher raw material costs, equipment maintenance and extreme weather adversely impacted expansion of factory activity in China in July.