CHINA’S exports and imports continued to decline in the first two months of the year, clouding the outlook for the economy as it gradually begins recovering from Covid restrictions and infection waves.
Exports fell 6.8% in January and February from the same period last year, official data showed on March 7, improving from December’s drop of 9.9% and a better outcome than the 9% drop predicted by economists.
Imports contracted 10.2% in the first two months of 2023 from a year earlier, far higher than the 7.5% decline in December and economists’ forecasts of a 5.5% drop. The trade surplus for the two months of this year was US$117 billion.
Economists said the sharp decline in imports was largely a result of weaker commodity prices and a stronger dollar, rather than a sign of muted domestic demand. Trade data for the first two months of the year is typically combined to avoid distortions from the Lunar New Year holiday.
“China’s trade figures for the first two months of 2023 were mixed while the general trend remains weak,” said Zhou Hao, chief economist for Guotai Junan International Holdings Ltd.
Chinese stocks extended decline on March 7 afternoon when trading resumed following the release of the customs data. The benchmark CSI 300 Index fell 1.1% as of 2:13pm local time led by Foxconn Industrial Internet Co – a Shanghai-listed arm of iPhone maker Foxconn Technology Group.
Global demand for Chinese goods started falling in late 2022 as soaring inflation in the rest of the world and higher interest rates took a toll on consumer spending. Exports had been a key pillar of China’s economic growth over the last two years, helping to offset a slump in domestic spending as Covid restrictions curbed business and consumer confidence.
That trend has now switched. Consumer spending is rebounding after the government abruptly dropped Covid restrictions in December and a post-reopening infection wave eased early this year. A government official said Monday the rebound in consumption has been rapid and the sector will play a bigger role in driving economic growth this year.
What Bloomberg Economics Says…
The decline in China’s exports in the first two months of 2023 is consistent with our view that external demand will drag on the economy’s recovery after propelling growth over the previous two years. This means domestic drivers will now have to do the heavy lifting. What’s needed are steps to fire up consumer spending, which remains constrained by weak confidence and impaired incomes.
David Qu, China economist
The outlook for global trade this year remains weak. Commerce Minister Wang Wentao said last week many companies have reported declining orders, while the value of orders is shrinking and long-term contracts are getting shorter.
The biggest drags in March 7’s export data were the equipment used for data processing, along with LCD displays and integrated circuits. Car and chassis, along with refined oil exports were strong, though, up 65.2% and 101.8% by value respectively.
China’s purchases of edible oil, coal and rare earths jumped the most by volume among all goods bought in the first two months of the year, while those of semiconductor parts and steel products saw the biggest declines, customs data showed. Imports of crude oil and natural gas fell 1.3% and 9.4% on year, respectively.
Export demand from South-East Asian countries increased in the first two months of the year, while trade with the European Union, US and Japan fell, the customs authority said. Shipments of mechanical and electrical products accounted for 58% of the value of exports in yuan terms in the period.
“China’s exports will face rather big downside pressure this year as global trade is expected to fall with likely slowing growth in major developed economies,” said Bruce Pang, chief economist for Greater China at Jones Lang Lasalle Inc.
China is targeting gross domestic product growth of around 5% for this year, a modest ambition after last year’s goal was missed by a wide margin. Economists surveyed by Bloomberg expect growth to reach 5.3% this year. — Bloomberg
- This article first appeared in The Malaysian Reserve weekly print edition