China’s exports decreased at a faster pace year-on-year in June than in May as Western demand was hit by high inflation and interest rate hikes.
The country’s exports to the United States fell by 23.7% to US$42.7 billon in June from a year ago while exports to the European Union dropped 12.9% to US$44 billion, according to the General Administration of Customs. In May, the figures were only down by 18.2% and 7% to the US and EU, respectively, from a year earlier.
Chinese officials blamed the weakening global demand, protectionism and geopolitical risks for the exports slump. But they said they are confident that China’s external trade will remain stable in the rest of this year due to the country’s efforts to explore emerging markets.
Dongguan factories
Chinese exporters have felt the negative impact of the weakening demand from the West on their orders since late 2022. Although China ended all its Covid rules in January this year, many manufacturers started downsizing or closing their businesses from March.
Media reports said several plastic and electronic parts suppliers, based in Dongguan and Shenzhen in Guangdong province, told their staff that they faced huge operational difficulties due to insufficient orders, serious losses and customers’ arrears. But this is only a tip of the iceberg.
In mid-April, Chinese manufacturers were disappointed to see a decline in the number of buyers from Europe and the US in the Canton Fair, the largest trade show in China. Some exporters said they saw more buyers from Latin America, Africa, Southeast Asia and Russia but these customers may provide lower margins.
More manufacturers in Dongguan, including a major paper box maker and a 30-year-old textile firm, closed their businesses last month, according to media reports.
A man surnamed Zhu says in a video posted on June 25 that he’s been trying to find a factory job in Dongguan but has seen only notices that factory owners seek to rent out their properties. He says he knows that some factories are offering workers only 12-13 yuan (US$1.68-1.82) per hour, which he calls too low for anyone to live on.
Trade with ASEAN also down
Some economists said the West’s call to diversify supply chains from China to Southeast Asia only has a small impact on China’s overall exports. They said China can ship its raw materials and unfinished products to Southeast Asian countries for processing and then send them to western markets.
But China’s exports to ASEAN also contracted – 15.9% and 16.9% – year-on-year in May and June, respectively, as Southeast Asian countries were also struck by the weakening Western demand.
Last month, China saw a decline in its exports to all key trading partners, except Russia and Singapore.
In the first half of this year, China recorded a 3.97% drop in total exports from the same period of last year. This compared with a year-on-year decline of 0.16% for the first five months of this year.
“The world’s economic recovery is sluggish while risks such as unilateralism, protectionism and geopolitics are growing,” Lyu Daliang, the spokesman for the General Administration of Customs, said in a media briefing on Thursday. “The negative impact of the weakening foreign demand on China’s external trade is lingering.”
However, he added that while the year-on-year growth of China’s external trade declined in June, the month-on-month growth was stable, meaning that the fundamentals of the Chinese economy are unchanged.
“In recent years, our foreign trade companies have given full play to their subjective initiative to explore new regional markets such as ASEAN and other developing countries, while stabilizing economic and trade exchanges with developed economies,” he said.
“Since the beginning of this year, our country has resumed face-to-face foreign affairs exchanges at all levels. Our ‘home-court’ diplomacy has continued to heat up,” he said. “In the first half, our country’s trade with ASEAN, Latin America, Africa and Central Asia increased by 5.4%, 7%, 10.5%, and 35.6%, year-on-year, respectively.”
Liu said China will continue to diversify its trading partners and expand its “friend circle” in global trade.
In the first four months of this year, China recorded a 15% growth in its exports to ASEAN, partly offsetting a 14.3% decline in shipments to the US and a 4.3% contraction to the EU.
Short-term outlook bleak
A Gansu-based financial columnist writes in an article published on Thursday that China’s exports started to decline in May due to the negative effect of the interest rate hikes implemented from last year. He says it’s unlikely that the unfavorable situation will change in the short run since countries such as Vietnam, South Korea and Singapore are also receiving fewer orders.
He says China should boost its economy by stimulating domestic consumption and infrastructure investment in the second half of this year. He says cutting mortgage rates may encourage people to spend more.
Peng Bo, a researcher at the Chinese Academy of International Trade and Economic Cooperation, says in an article published earlier this month that China will face more challenges in external trade in the second half of 2023 as its exports to emerging countries have also contracted from May.
Peng adds that the decline of China’s exports was partly caused by the relocation of some manufacturers from China to other countries while such a trend will continue for some more time.
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