China’s exports fall again, threatening economic recovery

The news

China’s trade figures fell in July, according to government data released on Tuesday. It’s a sign the country’s economic recovery is lagging behind, despite efforts by Beijing officials to restart growth.

Exports from China, which is the world’s second largest economy after the US, have now fallen for three straight months, while imports have fallen for five straight months. The figures reflect falling foreign demand for Chinese-made products, falling domestic demand, a housing crisis and geopolitical tensions, including the war in Ukraine.

Exports are likely to fall further for the remainder of the year, Nomura economists wrote in a note to investors.

“These readings point to a deterioration in growth prospects,” they said. “A worsening decline in exports means weaker production, while a rapid drop in imports reflects weaker demand in China.”

The payment

China’s exports fell 14.5 percent year-on-year in July, the sharpest drop since February 2020, when the coronavirus pandemic put the world into lockdown and entangled global supply chains. Imports fell by 12.3 percent over the same period.

In the first seven months of the year, exports to the United States fell 18.6 percent compared to the same period last year, while shipments to the European Union fell 5 percent. Exports to Russia, which is hit by Western sanctions over its invasion of Ukraine, rose more than 70 percent.

Mexico and Canada have overtaken China as the United States’ top trading partners this year as American companies seek to bring their supply chains closer to home. According to Chinese government data released on Friday, foreign investment in China fell more than 80 percent in the second quarter of this year compared to the same period last year.

Why it matters

As developed countries like the United States fight inflation by slowing demand, consumers are shifting spending from goods to services, Paul Donovan, chief economist at UBS, said in a note to investors.

“Demand for China’s exports has been generally weak,” he said.

Officials in Beijing have been attempting to orchestrate a recovery from an economic slump after nearly three years of pandemic restrictions. After China lifted its lockdowns last December, many expected the economy to recover, but the recovery has stalled.

A housing crisis and weak consumer spending are putting pressure on Beijing to boost exports to help stabilize the economy. But trade numbers released on Tuesday suggest weak demand could exacerbate a global slowdown.