China witnessed a significant decline in exports last month, marking the largest drop since the onset of the COVID-19 pandemic. In response to the challenges faced by the global economy, Chinese policymakers are reportedly under pressure to implement new stimulus measures.
China’s economic recovery from the pandemic showed a temporary pickup during the first quarter. However, this recovery has been consistently declining, with analysts predicting a gloomy outlook for the remainder of the year. The weakened global demand has particularly stifled China’s factory output, adding to the country’s economic struggles.
Data released by China’s Customs Bureau on July 13 revealed a 12.4 percent year-on-year decline in exports for June. This drop follows a 7.5 percent decrease in May. Imports were not spared either, as they contracted by nearly 7 percent, surpassing the expected 4 percent decline after May’s 4.5 percent drop.
Zichun Huang, an economist at Capital Economics, believes that the situation may worsen before improving. She stated, “The global downturn in goods demand will continue to weigh on exports, with a further decline in exports seen likely before they bottom out towards the end of the year. But the good news is that the worst of the decline in foreign demand is probably already behind us.”
The poor performance of China’s exports can be attributed to the weak global economic recovery affecting global trade and investment, as mentioned by Lyu Daliang, a spokesperson for the General Administration of Customs. Rising unilateralism, protectionism, and geopolitical tensions have also played a role in the decline. Notably, the diplomatic tensions between China and the United States, particularly regarding chip technology and other trade obstacles, significantly affected exports to the U.S. However, Chinese exports to Russia experienced a modest boost.
China’s hopes for a rapid post-COVID recovery have significantly faded. The country was initially lauded for implementing strict lockdown measures during the pandemic, but this has now dealt a heavy blow to its economy, compounded by the declining exports and a troubled property sector. Exports account for approximately 20 percent of China’s economy, while the property sector accounts for just over 30 percent.
Due to last year’s failure to reach the GDP growth target, the Chinese regime has set a more conservative target of around 5 percent for this year. The combination of soft exports, deflationary pressure, and calls for stimulus have placed pressure on the government to take action. However, fiscal constraints may limit the scale of support. The government would need to borrow more to fund larger expenditure, as stated by Xu Tianchen, a senior economist at the Economist Intelligence Unit.
Investors have become increasingly anxious as promises by Chinese Premier Li Qiang to implement new policy measures to boost demand and invigorate markets have yet to materialize. Following the release of the export data, the Chinese yuan slipped against the dollar. Analysts, however, predict that the drop will likely be limited as investors anticipate potential action on stimulating the economy after next month’s Politburo meeting.
The decline in production has also had a significant impact, with factory activity reaching levels low enough to affect consumer prices close to deflation. Additionally, producer prices have fallen at the fastest rate in over seven years. Semiconductor imports dropped by nearly 14 percent last month, indicating a downturn among Chinese manufacturers’ re-exportation of components in finished goods. Furthermore, there has been a slowdown in demand for raw materials, with copper imports showing a 16 percent drop in June compared to the same month the previous year.
In conclusion, China’s exports have experienced a sharp decline, presenting challenges for the country’s economic recovery. Policymakers are under pressure to implement new stimulus measures in response to the weakened global demand and declining factory output. While the situation may worsen before improving, there is hope that the worst of the decline in foreign demand is already behind us. The Chinese government faces fiscal constraints in providing support, but the expectations for action remain high. Investors await potential economic stimulation, and the economy’s performance in the coming months will determine if a quick rebound can be achieved without extensive stimulus measures.
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