Export growth in China stagnates as trade conflict inflicts damage
Updated Report:
Hang on a sec, folks! Let's break down those trade numbers and see what's cooking between Beijing and Washington.
China's export growth slowed down last month, coming in at 4.8% year-on-year, compared to the expected 6% growth and April's robust 8.1% surge. This slower pace, revealed by government figures yesterday, could set the tone for this week's anticipated trade talks between the two powerhouses.
On the import side, things painted a bleaker picture, with a more significant drop of 3.4% year-on-year. Domestic consumption within the world's second-largest economy seems to be faltering, as earlier data showed another month of falling prices.
Now, let's take a closer look at the trade war's ugly face. Exports to the U.S. plummeted 12.7% compared to April, when President Trump announced his heavy tariffs on China. Last month's exports to the U.S. also represented a year-on-year decline of over one-third—the steepest fall since early 2020. On the flip side, exports to Vietnam increased, with shipments to Southeast Asian nations like Malaysia, Thailand, Singapore, and Indonesia experiencing slight declines following a surge in April.
ING Bank NV's chief Greater China economist, Lynn Song (宋林), noted that exports to these Southeast Asian nations increased 14.8% year-on-year, helping China's exports stay relatively buoyant in the face of the trade war.
Speaking of uncertain trade outlooks, Pinpoint Asset Management Ltd's president and chief economist, Zhiwei Zhang (張智威), highlights the impact of "frontloading," where overseas buyers accelerate shipments ahead of potentially higher tariffs, making the picture highly uncertain.
Capital Economics economist Zichun Huang (黃子春) predicts that China's export growth will slow further by year-end, with tariffs "likely to remain elevated."
The latest trade data raises red flags about China's economy. Consumer price index (CPI) reports from the National Bureau of Statistics (NBS) showed a 0.1% year-on-year drop in the CPI last month—the fourth straight month of falling prices. This stagnation in consumer demand has been a concern since the end of the COVID-19 pandemic and may force companies to cut production, freeze hiring, lay off workers, or perpetually discount their stock, ultimately impacting profitability despite steady costs.
The producer price deflation was worse, contracting by 3.3% year-on-year last month, marking its lowest level in almost two years. This shows that production costs continue to decline, which may give companies a slight edge during the challenging trade environment, but only at the expense of lower profits.
Now, here's a bit of context: The ongoing trade tensions between China and the U.S. have been primarily due to tariffs imposed by both countries. Despite these challenges, China has made efforts to reduce its dependence on the U.S. by diversifying its export markets. And while the country's reliance on U.S. technologies is a concern, China has committed to self-reliance policies to boost its domestic capabilities and reduce dependence on foreign technologies.
So, as trade talks heat up this week, we'll have our fingers crossed and wait to see if the two powers can forge a deal that'll steer them away from the choppy waters of the trade war! 🤞vp💸🇨🇳🇮🇰
The ongoing trade talks between Beijing and Washington could influence the finance sector, as any deal reached might impact investment decisions in the industry.
China's slowing export growth, particularly to the U.S., and the continuing decline in production costs (as indicated by the producer price deflation) might require companies to seek alternative financing options to maintain profitability.
