China’s foreign trade volume continues to decline

Fresh data from Chinese customs show a continued decline in foreign trade. Exports and imports in July again turned out to be worse than expected, for the first time since the beginning of 2022, trade with Russia decreased. The Chinese government is looking for ways to revive domestic demand

The total volume of China’s foreign trade in January-July 2023 amounted to $3.4 trillion, which is 6.1% less than the same period in 2022, according to data from the General Administration of Customs (GCC) of the People’s Republic of China on August 8. China’s exports during this period decreased by 5% to $1.945 trillion, while imports fell by 7.6% to $1.455 trillion in annual terms.

In July, the volume of China’s foreign trade amounted to $482.9 billion, which is almost 13.6% less than in July 2022, and 3.4% less than June 2023. Chinese exports in July 2023 reached $281 .76 billion, down 14.5% from July 2022 (-1.2% from June 2023). According to Bloomberg, this is the new biggest drop since the start of the coronavirus pandemic in February 2020. The statistics on imports to China are also not encouraging: in July it amounted to $ 201.16 billion (12.4% less compared to July 2022). and 6.3% less than last June). Such statistics turned out to be much worse than analysts’ expectations: the Reuters forecast predicted a drop in imports to China in July by 5%, and exports by 12.5%.

At the same time, the situation with China’s foreign trade looks different if we consider the indicators in yuan. For example, in this currency, the GTU still records an increase in foreign trade by 0.4% in annual terms, but this is due to the weakening of the national currency against the dollar.

The Russian-Chinese trade turnover in the first seven months of 2023 grew by 36.5% in annual terms and amounted to $134.1 billion (China’s exports to Russia – $62.54 billion, and Russian exports to China – $71.55 billion, both indicators show growth). But July turned out to be the month in which the contraction of trade began – the trade turnover amounted to $19.48 billion, which is 6.4% less than June’s $20.83 billion. According to Reuters, in July 2023, for the first time since February 2022, the indicator of Russian exports to China fell – it amounted to $ 9.2 billion (-8% in annual terms and -18.3% compared to June 2023, when it amounted to $11.28 billion). The growth of Chinese exports to Russia continues, but at a slower pace – in July it amounted to $10.28 billion (+52% compared to July 2022 compared to an increase of 90.9% in June 2023 compared to June 2022. ).

The top three trading partners of China in the first seven months remained unchanged: ASEAN (trade – $519 billion), the European Union ($464 billion) and the United States (nearly $382 billion).

The published Chinese customs statistics had an immediate impact on world markets. Oil prices fell 1%, Reuters reported, which could be linked to China’s oil imports in July 2023 of 10.29 million barrels per day (down 18.8% from June, but with this is 17% more than in July 2022). The MSCI China index fell 1.9% on Aug. 8, and the offshore yuan fell to a more than two-week low of 7.23 per $1.

Analyzing data on Chinese exports, David Chao, an analyst at investment firm Invesco, attributed the decline to lower prices rather than lower volumes, which he said “remain surprisingly high.” Bloomberg analysts believe that the five-month decline in imports to China is a consequence of weak domestic demand. Separately, it is noted that the decline in the housing market hit the construction industry.

The Chinese government is already taking steps to revive domestic demand – for example, on July 31, the National Commission for Development and Reform approved the main directions for stimulating it. Among the measures are the expansion of paid holidays, the confirmation of benefits for buyers of electric vehicles, the improvement of infrastructure, and it was also decided to temporarily remove restrictions on the purchase of cars with internal combustion engines. The document calls on the authorities to stimulate the improvement of “housing needs”, resorting to special funds for this. However, the announced measures may not be enough, and, as economist Eric Zhu notes, without decisive further steps, the annual goal of the PRC authorities in the form of economic growth of 5% in 2023 may be in jeopardy. The threat of deflation also remains – producer prices for a number of products are declining from October 2022 on an annualized basis, due in part to falling coal and crude oil prices.

It is too early to draw global conclusions on the statistics for seven months: by the end of the year, the indicators may begin to grow again, says Sergey Lukonin, head of the economic and political sector of China at IMEMO RAS. One of the reasons why the overall volume of China’s foreign trade is declining, according to the expert, can be considered a weakening of the recovery momentum that was observed around the world after the lifting of anti-COVID restrictions. After the end of the pandemic, China’s exports began to grow rapidly, which correlated with the recovery in consumption in other countries (US, EU, Asia-Pacific), and now the figures are declining. The second reason, Lukonin adds, is the vague outlook for the global economy: it is now difficult to predict whether it will face a recession in the international market, whether some Chinese goods will be banned from being imported into the United States. In addition, at the moment there is a drop in demand for Chinese goods in Europe, which also negatively affects China’s economic performance.

During the pandemic and after the lifting of restrictions, China was very careful about pumping its economy with hard cash, fearing a rapid increase in the debt burden on state corporations, provincial governments and individuals, the expert says. There are now opportunities for China to stimulate its economy, for example by making public investments in infrastructure projects or launching the Digital China project. In addition, in some provinces of the PRC, there is a rollback in the policy of restricting purchases in the real estate market. The Chinese government is trying to find a balanced solution to stimulate the economy that will support demand growth without increasing the debt burden, Lukonin said. But at the same time, speaking of demand, it is worth considering the psychological reaction of the population in China: after the global financial crisis and the pandemic, people began to spend less and save more for the future, he concludes.

If you pay attention to the statistics of the main sales markets of China (Europe, North America), then we can say that their economic situation does not favor the purchase of Chinese goods, says Andrey Kochetkov, a leading analyst at Otkritie investitatsii. China is still the world’s factory, and since other markets now require less goods, it means that this country needs fewer raw materials and components. In addition, a spiral is now unfolding on the development of new restrictions by the United States and its allies on the supply of Chinese equipment, which used to be a serious item of China’s export, he adds. Since Chinese exports are not growing, there is no incentive for domestic producers to expand production, which means that there is a deflation in prices and a decline in imports for all groups of goods, with the possible exception of food. Russian exports to China fell in July due to the fact that China significantly reduced its purchases of oil – both due to a smaller discount, and due to the filling of commercial storage facilities and reduced demand, Kochetkov concludes.