China’s Economic Growth Surpasses Expectations as Exports Soar

China’s Economic Growth Surpasses Expectations as Exports Soar

China’s export sector experienced its sharpest contraction in three years as the global economy continues to struggle amid the COVID-19 pandemic. The Chinese government is now facing mounting pressure to implement new stimulus measures to revive economic growth.

Although China initially displayed strong momentum in its post-pandemic recovery during the first quarter, analysts have downgraded their forecasts for the rest of the year due to a slowdown in factory output caused by persistently weak global demand.

In June, outbound shipments from the world’s second-largest economy plummeted by a disappointing 12.4% compared to the previous year, according to data from China’s Customs Bureau. This decline follows a 7.5% drop in May. Imports also contracted by 6.8%, surpassing the expected 4.0% decline and surpassing the previous month’s 4.5% fall.

Zichun Huang, a China economist at Capital Economics, commented on the situation, stating, “The global downturn in goods demand will continue to weigh on exports,” adding that further decline in exports is likely before reaching a bottom towards the end of the year. However, she also expressed some optimism, suggesting that the worst of the decline in foreign demand may already be behind us.

During a news conference in Beijing, Lv Daliang, a spokesperson for the General Administration of Customs, attributed the poor export performance to a combination of factors, including a weak global economic recovery, slowing global trade and investment, and escalating unilateralism, protectionism, and geopolitics.

The United States, as China’s largest trading partner, has experienced the most significant decline in Chinese exports during the first half of the year. Tensions between the two nations over chip technology and other issues have contributed to this decrease. On the other hand, Chinese exports to Russia have seen a notable increase, albeit from a relatively modest level.

China’s economic prospects have dimmed for a swift recovery due to the impact of COVID-related lockdowns in 2022. The troubled property sector, which accounts for approximately one-third of the economy, and exports, which contribute around one-fifth, have played a significant role in this setback. The government has set a conservative GDP growth target of approximately 5% for this year, aiming to avoid the significant miss experienced in the previous year.

Xu Tianchen, senior economist at the Economist Intelligence Unit, believes that soft exports and deflationary pressure will increase calls for stimulus measures. However, he anticipates that the scale of support will be limited due to fiscal constraints on the government. Xu further explains that the government would need to borrow more to fund larger expenditures.

Chinese Premier Li Qiang, who assumed office in March, has pledged to introduce policy measures to boost demand and stimulate markets. However, concrete steps have yet to be announced, leading to growing impatience among investors. Following the release of the export data, the Chinese yuan weakened against the dollar. Nevertheless, analysts expect limited further currency depreciation as attention shifts to next month’s Politburo meeting, which may result in potential action regarding economic stimulus.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, highlights that the key question in the coming months is whether domestic demand can rebound without significant stimulus. Recent months have seen a contraction in factory activity, while consumer prices have neared deflationary territory in June, and producer prices have experienced the sharpest decline in over seven years.

Additionally, Chinese imports of semiconductors decreased by 13.6% in June, indicating limited demand from Chinese manufacturers for components to be used in finished goods. Moreover, there are signs of weakness in the demand for raw materials, as copper imports dropped by 16.4% compared to the previous year.