Summary
- China’s export growth in single digits, below forecast
- Imports delay, suggesting weak demand
- Trade balance narrows from July’s record
- Strong trade momentum expected to decline
China’s imports and exports reduced last month with growth significantly falling below forecasts as soaring inflation weakened overseas demand, heatwaves and fresh COVID restrictions disrupted output, resuscitating downside risks for the fragile economy.
Exports jumped 7.1% last month compared to a year ago, slowing from an 18.0% increase in July and marking the first downturn since April, official data showed on Wednesday, well below analysts’ projections for a 12.8% gain.
Outbound shipments have outranked other economic drivers this year but now experience growing challenges as inflation, hiking interest rates, and geopolitical tensions batter external demand. The dissatisfying August trade figures upset global financial markets, which have already been collapsing under a surging dollar and the expectation of much higher U.S. interest rates.
Zhou Hao, chief economist at Guotai Junan International, said:
“It seems the export softness arrived in earlier than expected, as recent shipping data suggests that demand from the U.S. and EU has already slowed as shipping prices have been falling significantly.”
He anticipates pricing effects will continue to upset trade and said import growth in real terms had already become negative since the late first quarter, indicating more headwinds for demand. Responding to the dissatisfying figures, China’s yuan increased losses, shedding 0.36% to 6.98 per dollar and advancing towards the psychologically crucial 7 mark.
Despite weakening around two-year lows, the plunging yuan has failed to provide China’s exports the competitive edge they require to offset waning external demand.
The slower growth is also in part caused by harsh comparisons with strong exports in 2021, but also compounded by more COVID curbs as infections increased and heatwaves hampered factory output in southwestern areas.
Export hub Yiwu placed a three-day lockdown early last month to curb a COVID flare-up, delaying local shipments and delivery of Christmas goods amid the peak season. Defying the broader trend, auto exports remained strong in August, rising 47% from a year ago, Reuters calculations based on customs data showed.
In the first eight months, China shipped 1.9 million units of cars, a 44.5% jump, supported by heavy demand for new energy vehicles in Southeast Asia.
China Import Worries
Suppressed economic demand, weighed by the worst heatwaves in decades, slow consumption, a property crisis, and weakened imports. Inbound shipments jumped 0.3% in August compared to 2.3% in July, well below a forecast of a 1.1% gain. Both exports and imports rose at their slowest pace in four months.
China’s imports of iron ore, crude oil, and soybeans all dropped, as the severe COVID restrictions and extreme heat hampered domestic output. Baking temperatures, however, caused the highest rise in coal imports this year as power generators struggled to obtain additional fuel to meet rising electricity demand.
Bruce Pang, a chief economist at Jones Lang Lasalle, stated:
Buy Crypto Now“The remarkably slower imports growth indicated the sector has faced a wave of headwinds in recent months, which is not expected to ease anytime soon. COVID outbreaks disrupted supply chains and demand, while the power rationing measures hurt production. The broad dollar strength also brings pressure on imports.”
This left a narrower trade surplus of $79.39 billion, in comparison to a record $101.26 billion surplus in July, marking the lowest since May when Shanghai was coming out from lockdowns.
Chinese policymakers this week suggested a renewed sense of urgency to boost the weakening economy saying action was crucial in the quarter as data indicates a further loss of economic momentum. The central bank on Monday said it would reduce the amount of foreign exchange reserves financial firms must hold, a step intended to slow the yuan’s latest slumps.
