Summary
- China’s October exports, imports contract unexpectedly
- Bleak data further blow to struggling economy
- Global recession risks, COVID curbs in China cloud outlook
- Analysts expect further fall in exports and imports
China’s trade (exports and imports) unexpectedly shrank last month, the first simultaneous fall since May 2020, as a perfect storm of COVID controls at home and global recession risks weakened demand and further dimmed the outlook for a reeling economy.
The bleak data underscores the challenge for policymakers in China as they proceed with pandemic prevention measures and attempt to handle broad pressure from soaring inflation, sweeping rises in worldwide interest rates, and a global slowdown.
Outbound shipments in October contracted 0.3% compared to a year ago, a sharp turnaround from a 5.7% gain the previous month, official data showed on Monday, and missed analysts’ expectations for a 4.3% rise. It was the most disappointing performance since May 2020.
The data indicates demand remains weak overall, and analysts’ caution of further gloom for exporters over the coming quarters, loading more pressure on the country’s manufacturing sector and the world’s second-largest economy struggling with continuous COVID-19 controls and prolonged property weakness.
Chinese exporters weren’t even able to profit from an extended weakening in the yuan currency since April and the prime year-end shopping season, highlighting the broadening strains for businesses and consumers globally.
The yuan on Monday dropped 0.4% from a more than one-week high against the dollar attained in the previous session, as the frail trade data and Beijing’s promise to continue with its strict zero-COVID strategy weighed on sentiment.
“The weak export growth likely reflects both poor external demand as well as the supply disruptions due to COVID outbreaks,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, mentioning COVID disruptions at a Foxconn factory, a major Apple supplier, as one example.
Apple Inc (AAPL.O) said it anticipates lower-than-expected shipments of high-end iPhone 14 models following a major production cut at the virus-blighted Zhengzhou plant.
Zichun Huang, economist at Capital Economics, said:
“Looking forward, we think exports will fall further over the coming quarters… We think that aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into a recession next year.”
Growth of auto exports with regard to volume also reduced sharply to 60% year-on-year from 106% the prior month, according to Reuters calculations based on customs data, indicating a transition from demand for goods to services in advanced economies.
Overall exports to China’s key markets of the European Union and the United States also dropped in October, off 9% and 12.6% year-on-year, respectively.
Domestic Woes Hinder Growth
Roughly three years into the pandemic, China has stood by a strict COVID-19 containment policy that has inflicted a heavy economic toll and prompted widespread fatigue and frustration. Weak October factory and trade figures indicated the economy is grappling to steer clear from the mire in the last quarter of this year, after it posted a higher-than-expected rebound in the third quarter.
The conflict in Ukraine, which triggered a rise in already high inflation globally, has deepened geopolitical tensions and further diminished business activity.
Chinese policymakers vowed last week to prioritize economic growth and continue with reforms, allaying fears that ideology could prevail as President Xi Jinping commenced a new leadership term and disruptive lockdowns continued with no clear exit strategy in sight.
Buy Crypto NowTepid domestic demand, partly hit by fresh COVID restrictions and lockdowns in October, weighed on importers. Inbound shipments fell 0.7% compared to a 0.3% gain the previous month, under a forecast 0.1% increase, flagging the weakest outcome since August 2020.
The grim impact on demand from tough pandemic measures and a property slump was also underscored in a broad range of Chinese imports; purchases of soybeans fell to eight-year-lows in October while copper imports dropped and coal imports slackened after reaching a 10-month high the prior month.
On top of the global slowdown, feeble domestic consumption will put more pressure on China’s economy for a while yet, analysts say. Bruce Pang, chief economist at Jones Lang Lasalle, said:
“Insufficient domestic demand is the main constraint on China’s short-term recovery and long-term growth trajectory.”
