China’s Export Growth Slows

By Liz Lee and Ellen Zhang

BEIJING (Reuters) – China’s exports grew at their slowest pace in three months in July, missing expectations and raising concerns about the manufacturing sector. Meanwhile, a rush to boost chip supplies before anticipated U.S. tech curbs increased imports.

Analysts suggest that China’s factories will likely face significant pressure in the coming months, hindered by Western tariffs, declining demand, and market volatility which complicates efforts to bolster a fragile economic recovery.

Export Performance

Outbound shipments increased by 7.0% in July compared to the previous year, a slower growth compared to June’s 8.6% rise and below forecasts of a 9.7% increase.

Quote from Lynn Song: “Due to base effect, China’s exports may keep a single-digit growth in the near future, but considering the slowing external demand and tariffs, the outbound shipments in the second half of 2024 will face bigger pressure.”

On the other hand, imports rose at a healthy 7.2% rate, reversing June’s 2.3% decline, marking the strongest performance in three months, and surpassing analyst expectations of a 3.5% rise. The robust import figures were bolstered by a rush from Chinese firms to purchase chips ahead of anticipated U.S. restrictions on chip exports to China.

Quote from Xing Zhaopeng: “Looking ahead, the upward trade cycle may have ended. Both imports and exports are expected to slow down in the third quarter.”

Oil and Commodity Trends

Imports of crude oil fell in July to their lowest level since September 2022, while imports of iron ore and soybeans rose compared to the previous year.

Economic Policy and Stimulus

Market reactions to the data were mixed; the Chinese yuan weakened against the dollar while the nation’s blue-chip stock index gained 0.2%. Despite government efforts to stimulate domestic demand post-pandemic, the economy has struggled to gain momentum amid a protracted property slump and concerns over job security.

China’s economy grew 4.7% in Q2, undercutting expectations and increasing calls for additional support to reach the annual growth target of around 5%.

Chinese leaders recently indicated that future stimulus measures would focus on consumers, aiming for “countercyclical adjustments” throughout 2024. Notably, the government announced that approximately 150 billion yuan of the 1 trillion yuan raised through special debt issuance will subsidize the replacement of old consumer goods.

China’s trade surplus narrowed to $84.65 billion in July, lower than the forecast and June figures, contributing to growing concerns about the sector amid increasing tariffs from various countries.

Global Trade Tensions

The slowdown in export growth raises concerns about the sector’s outlook, as multiple countries have expressed concerns over China’s trade dominance.

Tariffs and barriers continue to rise from the U.S., Europe, and emerging markets, with Washington planning to implement raised tariffs on various Chinese products. Conversely, imports from the U.S. surged by 24.1% in July compared to a year earlier.

Conclusion

Concerns over a potential U.S. recession further complicate the situation for Chinese exporters. Lower export prices, coupled with consistent export volumes, have strained profit margins for manufacturers. Many firms are pivoting towards exports due to sluggish domestic growth, intensifying competition and necessitating price reductions of 10-20% for some products.

Quote from Jin, rattan furniture seller: “I feel external demand didn’t rebound this year.”

($1 = 7.1836 Chinese yuan renminbi)