By Sergey Manukov
Along with the growing pace of economic development, Beijing needs to increase domestic demand.
China's exports fell for the third month in a row in July on the back of lower global demand. Imports also sank sharply, as domestic demand falls in the same way as global demand. China's exports in dollar terms decreased in July, according to Bloomberg, citing data from Chinese customs, by 14.5% in annual terms (this is the maximum decline since February 2020), while imports decreased by 12.4%. The positive trade balance amounted to $80.6 billion.
The results for exports and imports were worse than the forecasts of economists polled by Bloomberg - 13.2% and 5.6%, respectively. Chief Economist at Pinpoint Asset Management Ltd. Zhang Zhiwei believes that a stronger decline in imports compared to experts' forecasts indicates weak domestic demand.
“It does not seem to be improving in China with weak consumption and investment,” he concludes.
Some economists also attribute the sharp decline in imports to falling commodity prices.
Securities markets immediately reacted to weak data on exports and imports. The Hong Kong Hang Seng China Enterprises Index sank 1.6% by mid-day local time. For the yuan, the changes are insignificant: the Chinese currency fell by 0.3% in the morning and traded at 7.2214 per dollar.
Economists have been eagerly awaiting data on exports and imports, because a few months ago it was assumed that one of the drivers of the recovery of the Chinese economy this year will be strong domestic consumption. However, the data show that expectations are falling short: consumer confidence and domestic demand are not improving. The evidence for this conclusion is clear – China's imports have been falling for the fifth month in a row. Another proof may appear tomorrow, August 9: expected data on the decline in July and consumer prices.
Asia is hardest hit by the decline in domestic demand in China. The decline in imports from Japan, South Korea, Taiwan and Southeast Asia in July was recorded in double digits. Imports of US goods fell 11.2%. Relatively insignificant drop in comparison with other countries of the regions in imports from the European Union - 3%.
Exports fell on declining demand abroad. The double-digit decline in exports is also explained by the high base of comparison - in 2021-22, during the coronavirus pandemic, exports were record high.
Exports of Chinese goods to the United States in July collapsed, according to Chinese customs, by almost a quarter (23.1%). Exports to other countries and regions also fell by double digits. The price deflation in China is also noteworthy – over the past couple of months, Chinese companies have been forced to reduce prices in order to survive in adverse economic conditions.
The Chinese government, of course, is not sitting idly by and is looking for ways to stimulate economic growth this year, but so far the authorities' support has been targeted and limited in scope. The authorities have announced certain measures to increase demand for housing, electric vehicles and other goods. Several ministries announced measures in July to boost household spending. Three departments related to light industry reported an increase in the production of small consumer goods, which account for more than a quarter of China's exports.
“The government is making policy adjustments, but so far it's mainly in the construction sector and the real estate market,” Zhang says. “These changes are not very effective in influencing demand. The economic situation is quite tense.”
Economists have high hopes for the second half of the year. In Beijing, they hope for an acceleration in economic growth, which, according to government economists, should give impetus to imports.
This article originally appeared in Russian at expert.ru