March 21, 2023

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China trade unexpectedly shrinks as coronavirus curbs and global demand slows

China trade unexpectedly shrinks as coronavirus curbs and global demand slows

  • October China’s exports and imports unexpectedly shrink
  • Weak data is another blow to the faltering economy
  • Global recession risks, curbing COVID in China darkens expectations
  • Analysts expect further weakness in exports and imports

BEIJING (Reuters) – China’s exports and imports unexpectedly contracted in October, the first simultaneous decline since May 2020, as a perfect storm of Covid restrictions at home and a global recession threatened demand and darkened the outlook for a faltering economy.

The bleak data highlights the challenge facing China’s policymakers as they press on epidemic prevention measures and try to weather broad pressures from rising inflation, sweeping increases in global interest rates and a global slowdown.

Official data on Monday showed shipments out of October contracted 0.3% from a year earlier, a sharp turnaround from a gain of 5.7% in September, and well below analysts’ expectations for a 4.3% increase. It was the worst performance since May 2020.

The data suggests that demand remains weak overall, and analysts warn of more gloom for exporters over the coming quarters, putting further pressure on the country’s manufacturing sector and the world’s second-largest economy facing ongoing COVID-19 restrictions and extended property weakness. .

Chinese exporters have not even been able to take advantage of the prolonged weakness in the yuan since April and the major year-end shopping season, highlighting the mounting pressures on consumers and businesses around the world.

On Monday, the yuan slipped 0.4% from its highest level in more than a week against the dollar reached in the previous session, as weak trade data hurt and Beijing pledged to continue its tough strategy to combat the emerging coronavirus.

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“The weak export growth likely reflects both weak external demand as well as supply disruptions due to the COVID outbreak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing the COVID disruptions at the Foxconn factory, a major supplier to Apple, for example. .

Apple company (AAPL.O) It said it expects lower-than-expected shipments of high-end iPhone 14 models after a major production cut at its virus-hit Zhengzhou plant.

“Looking forward, we believe exports will decline further over the coming quarters… We believe that strong fiscal tightening and the withdrawal of real income from rising inflation will push the global economy into recession next year,” said Zichun Huang, an economist at Co. Capital Economics.

Growth in auto exports in volume terms also slowed sharply to 60% year-on-year from 106% in September, according to Reuters calculations based on customs data, reflecting the transition from demand for goods to services in major economies.

Overall exports to China’s main markets of the United States and the European Union also declined in October, declining by 12.6% and 9% year-on-year, respectively.

Reuters graphics

Humber growth for home textile

Nearly three years after the outbreak of the epidemic, China has adhered to a strict containment policy of the COVID-19 virus, which has caused huge economic losses and caused widespread frustration and fatigue.

Weak October factory and trade numbers indicated the economy was struggling to get out of the mud in the last quarter of 2022, after reporting a faster-than-expected recovery in the third quarter.

The Ukraine war, which has fueled already high inflation rates globally, has heightened geopolitical tensions and further weakened business activity.

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Chinese policymakers vowed last week to prioritize economic growth and press ahead with reforms, easing concerns that ideology may take precedence as President Xi Jinping begins a new leadership term and troublesome lockdowns continue with no clear exit strategy in sight.

Lukewarm domestic demand, affected in part by new coronavirus restrictions and lockdowns in October, has hurt importers.

Incoming shipments fell 0.7% from a 0.3% gain in September, less than the expected 0.1% increase, marking the weakest result since August 2020.

The harsh impact on demand caused by strict epidemiological measures and property decline in a wide range of Chinese imports was also highlighted; Purchases of soybeans fell last month to their lowest level in eight years while imports of copper declined and imports of coal declined after hitting a 10-month high in September.

Analysts say that in addition to the global slowdown, weak domestic consumption will put more pressure on the Chinese economy for a while now.

“Inadequate domestic demand is the main obstacle to China’s short-term recovery and long-term growth path,” said Bruce Pang, chief economist at Jones Lang LaSalle.

(Reporting by Elaine Zhang and Ryan Wu) Editing by Shree Navaratnam

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