BEIJING (Reuters) – China’s exports contracted last month at their fastest pace since the onset of the COVID-19 epidemic three years ago, as the faltering global economy put increasing pressure on Chinese policymakers to take new stimulus measures.
Momentum in China’s post-pandemic recovery after a brisk rebound in the first quarter has slowed, with analysts now lowering their forecasts for the economy for the rest of the year as factory production slows in the face of persistently weak global demand.
Data from China’s customs office on Thursday showed that outbound shipments from the world’s second-largest economy fell worse-than-expected by 12.4% year-on-year in June, after a 7.5% drop in May.
Imports contracted 6.8%, larger than the expected 4.0% decline and the previous month’s decline of 4.5%.
“The global contraction in commodity demand will continue to weigh on exports,” said Zichun Huang, China economist at Capital Economics, with exports expected to decline further before bottoming out at the end of the year.
“But the good news is that the worst of the decline in foreign demand may already be behind us,” she added.
Lv Daliang, a spokesperson for the General Administration of Customs, blamed the poor export performance on “weak global economic recovery, slowing global trade and investment, and increasing unilateralism, protectionism and geopolitics,” in remarks at a news conference in Beijing.
Exports to the United States — the top destination for Chinese goods — among its major trading partners tumbled during the first half of the year, as diplomatic tensions escalated over chip technology and other issues, while exports to Russia rose sharply, though at a modest level.
With exports accounting for about a fifth of the economy and the battered real estate sector for about a third, China’s prospects for a quick recovery after the COVID-related shutdowns hit the economy in 2022 have dimmed.
The government has set a modest GDP growth target of around 5% for this year, having missed last year’s target far and wide.
“Soft exports and deflationary pressure will increase calls for stimulus, but I don’t think the scale of support will be massive,” said Xu Tianchen, chief economist at the Economist Intelligence Unit.
He added, “This is because of the financial constraints on the government, they need more borrowing to finance the bigger spending.”
pressure for stimulation
Chinese Premier Li Qiang, who took office last March, promised to implement policy measures to boost demand and invigorate markets, but few concrete steps have been announced and investors are becoming impatient.
The Chinese yuan fell against the dollar after the data was released, but analysts said further currency weakness is expected to be limited as investors set their sights on next month’s Politburo meeting and any possible economic stimulus measure.
“The big question in the next few months is whether domestic demand can rebound without a lot of stimulus,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Factory activity in China has contracted in recent months, while consumer prices teetered on the brink of deflation in June and producer prices fell at their fastest pace in more than seven years.
China’s imports of semiconductors fell 13.6% in June, slower than the 15.3% decline in May, but it indicates a limited appetite among Chinese manufacturers for re-exporting components in finished goods.
Demand for raw materials also showed signs of weakening, with copper imports down 16.4% in June compared to a year earlier.
(Reporting by Joe Cash and Elaine Zhang); Edited by Edmund Kellman
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