China’s trade unexpectedly shrinks as COVID curbs, global slowdown jolt demand

China’s October surprise contraction in exports and imports was the first such simultaneous slump since May 2020. This was due to a combination of COVID curbs at the home and global recession risk, which further weakened demand and further dimmed the prospects for an economy that is struggling.
These grim statistics highlight the challenges facing policymakers in China as these push for pandemic prevention measures. They also have to deal with pressures from global interest rate increases, surging inflation and general slowdown.
Official data on Monday showed that October’s outbound shipment volume fell 0.3% from one year ago. This is a stark turnaround from September’s 5.7% increase. Analysts had expected a 4.3% rise. This was the worst performance since May 2020.
Data suggests that demand is still weak overall. Analysts warn of more gloom for exporters in the next quarter, adding to the pressure on the country’s manufacturing sector as well as the second-largest economy in the world, which continues to struggle with persistent COVID-19 curbs.
Chinese exporters were unable to capitalize on the prolonged weakness in the yuan currency from April and the key year end shopping season. This highlights the increasing strains on consumers and businesses around the world.
Monday’s 0.4% drop in the yuan against the dollar was due to weaker trade data and Beijing vowing to maintain its strict zero-COVID policy.
Zhiwei Zhiwei, Pinpoint Asset Management’s chief economist, stated that the weak export growth is likely to reflect both low external demand and supply disruptions caused by COVID outbreaks. He cited COVID disruptions at Foxconn, a major Apple supplier as an example.
Apple Inc (AAPL.O) said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-blighted Zhengzhou plant.
“We think exports will continue to fall in the future… We believe that the aggressive financial tightening combined with the drag on real incomes by high inflation will force the global economy into recession next year,” stated Zichun Huang, Capital Economics economist.
According to Reuters calculations based upon customs data, the volume growth of auto exports also slowed to 60% from 106% in September. This is due to a shift from goods demand to services in major economies.
Exports to China’s main markets, the United States, and the European Union, also fell in October by 12.6% and 9.9% respectively.
DOMESTIC WOES HAMPER GREEN
Three years after the pandemic began, China has continued to follow a strict COVID-19 containment strategy. This has caused widespread frustration and fatigue and has taken a significant economic toll.
Feeble October factory and trade figures suggested the economy is struggling to get out of the mire in the last quarter of 2022, after it reported a faster-than-anticipated rebound in the third quarter.
The Ukraine war, which has sparked an increase in already high inflation globally and dampened business activity, has increased geopolitical tensions.
China’s policymakers promised last week that they would prioritise economic growth. They also pledged to press forward with reforms. This eased fears that ideology might take precedence. President Xi Jinping started a new term, and disruptions continued without a clear exit strategy.
Importers were hurt by a sluggish domestic demand that was partly weighed down in October by new COVID lockdowns and curbs.
Inbound shipment volumes declined 0.7% in September from a 0.3% increase in September. This is below the forecast 0.1% rise, which was the weakest result since August 2020.
A wide range of Chinese imports also showed the harsh effects of strict pandemic measures on demand and a property slump. Soybean purchases fell to an eight-year low last month, while copper imports dropped and coal imports slowed after reaching a 10-month high in September.
Analysts predict that China’s slowdown will be compounded by weak domestic consumption.
Bruce Pang, chief economist at Jones Lang Lasalle, stated that China’s insufficient domestic demand is the biggest obstacle to its short-term recovery as well as long-term growth trajectory.