China's Declining Imports and Weaker Export Growth Cast a Shadow Over the Economy's Prospects

May 22, 2023
Stephanie Bedard-Chateauneuf
In spite of the easing of Covid limits, China's imports plunged sharply in April, while exports increased more slowly.

In spite of the easing of Covid limits, China's imports plunged sharply in April, while exports increased more slowly. This confirms signs of weak domestic demand and puts additional strain on an already troubled economy due to the slowing of global development.

Although factory output has lagged and the most recent trade numbers show a long road ahead, the Chinese economy grew faster than forecast in the first quarter, primarily thanks to strong services demand.

According to customs numbers issued on Tuesday, shipments into the second-largest economy in the world fell 7.9% year over year in April, following a 1.4% decline the previous month, while exports rose 8.5%, easing from a 14.8% growth in March.

According to a Reuters survey of economists, imports would not increase but exports would rise by 8.0%.

Government officials have regularly warned of a "severe" and "complicated" external environment in the wake of mounting recession prospects for several of China's major trading partners.

Given the weak rebound from last year, when inbound and outgoing shipments were significantly hampered by China's Covid-19 restrictions, the dramatic decline in trade flows last month will further increase worries about the health of foreign demand and the threats to the home economy.

Despite the unquestionable influence of global factors, Hong Kong and mainland Chinese markets appeared to be declining based on the data. The blue chip CSI300 Index in China was down 0.26% after rising 0.5% before the lunch hour, while the Hang Seng Index in Hong Kong was down 1.11% in the early afternoon.

Import Worries

When China re-exports some of its imports, it also reveals the degree of weakness in some of its primary trading partners' economies. The decline in imports suggests that the world economy will be unable to rely significantly on China's domestic economic engine.

The amount of demand-pullback in the re-export market for such components may be seen in the 15.3% drop in semiconductor imports.

Due to the continuous global push to tighten monetary policy and the current crisis in Western banks, analysts are worried about the potential for a revival in China and the rest of the world.

The growth in shipments to the ASEAN bloc of countries in Southeast Asia decreased from 35.4% in March to 4.5% in April.

China's biggest significant export partner is the area.

Other recent data shows that South Korean exports to China, a key indicator of China's imports, continued a 10-month decline in April, falling by 26.5%.

As demand in the Asian powerhouse dropped, China's imports of coal decreased in April after reaching a 15-month high the previous month. During the same time period, imports of natural gas and copper, a proxy for global growth, decreased as well.

The latest official manufacturing purchasing managers' index for April revealed a sharp decrease in new export orders, underscoring the challenges facing Chinese authorities and businesses seeking a prolonged post-Covid economic revival.

Although the first-quarter GDP results for China, which were revealed this month, offered some solace, they also brought to light worries about the demand picture because of the sluggish housing market, declining prices, and rising bank savings.

After falling short of the 2022 target, the administration, which has boosted a number of economic aid measures, is aiming for a modest GDP growth objective of around 5% this year.