China has seen its exports and imports plunge below anticipations in July, as sluggish demand threatens recovery prospects in the world’s second-biggest economy, ramping up pressure for the ruling Communist Party to release fresh stimulus to reverse an economic slump.
The grim trade numbers reinforce expectations that economic activity could slow further in the third quarter, with construction, manufacturing and services activity, foreign direct investment and industrial profits all weakening.
Exports contracted 14.5% to $281.8 billion as the decline widened from June's 12.4% fall, customs data showed on Tuesday. It marked a steeper than an expected 12.5% decline in a Reuters poll.
Imports tumbled 12.4% from a year earlier to $201.2 billion in a sign of weak domestic demand, widening from the previous month's 6.8% contraction and missing a forecast fall of 5%.
The pace of export decline was the fastest since the onset of the pandemic in early 2020 and the tumble in imports was the biggest since January this year, when COVID-19 infections shut shops and factories.
The country's global trade surplus narrowed by 20.4% from a record high a year ago to $80.6 billion.
Demand for Chinese exports cooled after the U.S. Federal Reserve (Fed) and central banks in Europe and Asia started raising interest rates last year to cool inflation that was at multi-decade highs.
While the weakness in the value of imports reflects poor demand, falls in commodity prices have also exacerbated the headline declines, analysts say.
"Most measures of export orders point to a much greater decline in foreign demand than has so far been reflected in the customs data," said Julian Evans-Pritchard, head of China economics at Capital Economics.
"And the near-term outlook for consumer spending in developed economies remains challenging, with many still at risk of recessions later this year, albeit mild ones."
The yuan hit a three-week low and Asian stocks and the Australian and New Zealand dollars, seen as proxies for Chinese growth, turned weaker after the data.
Added pains
China's economy grew at a sluggish pace in the second quarter as demand weakened at home and abroad, prompting top leaders to promise further policy support and analysts to downgrade their growth forecasts for the year.
Economic growth sank to 0.8% in the three months ending in June compared with the previous quarter, down from the January-March period's 2.2%. That is the equivalent of 3.2% annual growth, which would be among China's weakest in three decades.
The value of China's exports declined 5% year-over-year in the first half of the year to just over $1.9 trillion despite total cargo throughout increasing an annual 10% in the second quarter and 8% in the first, according to Fitch. Imports were down 7.6% at $1.4 trillion.
The headline import figure was worse than forecast because "economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports," explained Xu Tianchen, senior economist at the Economist Intelligence Unit.
"For example, China is importing more oil but at lower prices, as a result, the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans."
Crude oil shipments to the world's biggest oil importer were 17% higher in July than the same period last year, but fell 18.8% from the previous month to the lowest daily rate since January, while soybean imports in July jumped 23.5% from a year ago, off the back of near-record production in Brazil.
Exports to the United States – the top destination for Chinese goods – tumbled 23.1% year-over-year to $42.3 billion, while imports of American goods retreated 11.1% to $12 billion. China's politically sensitive trade surplus with the U.S. narrowed by 27% to a still-robust $30.3 billion.
Exports to the 27-nation European Union slumped 39.5% from a year earlier to $42.4 billion, as diplomatic tensions mount over chip technology and "de-risking" from China. Imports of European goods were off 44.1% at $23.3 billion. China's trade surplus with the EU contracted by 32.7% to $19.1 billion.
South Korean exports to China, a leading indicator of Chinese demand for global goods, fell 25.1% in July from a year earlier, the sharpest decline in three months.
China's imports from Russia, mostly oil and gas, narrowed by just under 0.1% from a year ago to $9.2 billion. Chinese purchases of Russian energy have swelled, helping offset revenue lost to Western sanctions imposed to punish the Kremlin for its invasion of Ukraine.
China, which is friendly with Moscow but says it is neutral in the war, can buy Russian oil and gas without triggering Western sanctions. The U.S. and French officials cite evidence China is delivering goods with possible military uses to Russia but have not said whether that might trigger penalties against Chinese companies.
Beijing is looking for ways to boost domestic consumption without easing monetary policy too much lest it triggers large capital outflows.
The state planner last week said the stimulus would be forthcoming, but investors have so far been underwhelmed by proposals to expand consumption in the automobile, real estate and services sectors.