China’s exports are falling again, hindering its economic recovery

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China’s trade numbers fell in July, according to government data released on Tuesday, a sign that the country’s economic recovery was lagging despite efforts by officials in Beijing to revive growth.

Exports from China, which has the second largest economy in the world after the United States, have fallen for three straight months while imports have fallen for five straight months. The numbers reflect declining foreign demand for products made in China, sluggish domestic demand, the real estate crisis and geopolitical tensions, including the war in Ukraine.

Nomura economists wrote in a note to investors that exports will likely continue to decline for the rest of the year.

“These readings indicate a deterioration in growth prospects,” they said. “A worsening export contraction means weaker production, while a rapid deterioration in imports reflects weaker demand within China.”

Numbers

China’s exports fell 14.5 percent in July from the same point last year, the biggest drop since February 2020, when the coronavirus pandemic shut down the world and tangled global supply chains. Imports fell 12.3 percent in the same period.

In the first seven months of the year, exports to the United States were down 18.6 percent from the same period last year, while shipments to the European Union were down 5 percent. Exports to Russia, which has been subjected to Western sanctions for its invasion of Ukraine, increased by more than 70 percent.

Mexico and Canada surpassed China This year as the best trading partners of the United States, American companies seek to bring their supply chains closer to home. Foreign investment in China fell by more than 80 percent in the second quarter of this year compared to the same point last year, according to Chinese government data released on Friday.

why does it matter

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

“There has been a general weakness in demand for China’s exports,” he said.

Officials in Beijing are trying to boost recovery from an economic recession after nearly three years of pandemic restrictions. After China ended its lockdowns last December, many expected the economy to return to normal, but the recovery has stalled.

The real estate crisis and weak consumer spending have put pressure on Beijing to increase exports to help stabilize the economy. But trade figures released on Tuesday suggest that weaker demand could exacerbate the global slowdown.