CHINA’S exports fell 12.4 per cent in June year on year, while imports contracted 6.8 per cent, customs data showed on Thursday (Jul 13), suggesting that manufacturers are struggling to find buyers while overseas economies wrestle with inflation and rising interest rates.

A Reuters poll of economists had forecast exports to have shrunk 9.5 per cent and imports to have fallen 4 per cent.

The drop in exports was the worst since the onset of the Covid-19 pandemic more than three years ago.

The slump in imports reinforced concerns about softening domestic demand, which has seen inflation plateau and forced the central bank to ease monetary policy, putting pressure on the yuan.

Customs spokesperson Lyu Daliang pointed to outside forces having a “direct impact” on Chinese trade, with Beijing engaged in a long-running stand-off with the US on a number of issues including trade and technology.

“The risks linked to unilateralism, protectionism, and geopolitics are on the rise,” he said.

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Momentum in China’s post-pandemic recovery has slowed after a brisk pickup in the first quarter. Analysts have downgraded their projections for the economy for the rest of the year, as factory output slows in the face of persistently weak global demand.

The threat of recession in the US and Europe has led to lukewarm demand for Chinese products. And weak economic data in developed countries “will put more pressure on Chinese exports” in the coming months, warned economist Zhiwei Zhang of Pinpoint Asset Management.

Policymakers in the world’s second-largest economy are now reckoning with the prospect of prolonged slower growth of around just 3 per cent annually, according to economists’ forecasts. That is less than half the rates typical throughout recent decades, and has created the feel of an economy in recession.

Chinese factory activity has been shrinking in recent months. Consumer prices teetered on the edge of deflation in June, and producer prices fell at their fastest pace in more than seven years.

South Korean shipments to China, a leading indicator for China’s imports, fell 19 per cent last month, the smallest decline since October. But the dip still suggests that demand for semiconductors and other components used to manufacture electronic goods remains weak.

Since taking up his post in March, Chinese Premier Li Qiang has talked a good game on rolling out policy measures to boost demand and invigorate markets, but few concrete steps have been announced, and investors are growing impatient.

While the People’s Bank of China has cut borrowing costs, officials have been reluctant to launch a vast recovery plan, which would deepen debt, despite growing calls for more ambitious stimulus.

“The big question in the next few months is whether domestic demand can rebound without much stimulus from the government,” Pinpoint’s Zhang said.

China has set a modest GDP growth target of around 5 per cent for this year, after badly missing its 2022 goal. REUTERS, AFP