China’s exports to the U.S., one of its biggest trading partners, fell by 23.1% to $42.3 billion in July from a year ago, according to data released today by China’s General Administration of Customs. Its shipments to the 27-nation European Union and to the Association of Southeast Asian Nations, a group of 10 countries consisting of Singapore and Indonesia, each plummeted by about 21%.
There was only one exception to the trend: Chinese shipments to Russia expanded 52% in July to $10.28 billion, but the increase was still much slower than the 90.9% growth registered in June.
On a year-to-date basis, Chinese exports for the first seven months of the year were down 5% at just over $1.9 trillion.
Geopolitical tensions are bad for business
Washington and some EU governments have been in a tit-for-tat battle with Beijing over export restrictions on key materials used to make semiconductors and other sensitive technologies, choking up bilateral trade flows.
Exports used to be a rare bright spot for the Chinese economy during three years of COVID-induced isolation from the rest of the world, as they provided much-needed financial support for the country when its real estate sector struggled and domestic spending shrank under virus-control restrictions.
Last year, exports accounted for 17% of China’s GDP. But since last October, despite a temporary rebound in the spring, goods exports from China have suffered a downward trend as consumers in Western countries reduce orders amid high inflation and a gloomy economic outlook.
To make matters worse, “worsening geopolitical tensions between Beijing and the U.S.-led West have also prompted some Western manufacturers to reduce their reliance on China’s supply chain, which in turn is expected to erode trade ties between the two sides,” per the Wall Street Journal.
Imports are also down
When it comes to imports, China isn’t doing so well, either. Tuesday’s data also showed that China’s imports slid 12.4% last month due to weakening domestic demand, a figure that widely missed a forecast 5% drop in a Reuters poll of analysts and was one of the worst declines in recent years.
The plunge in imports even extended to China’s trade with Russia, where Chinese imports from Russia fell by 8% in July compared with a year earlier, in contrast to 15.7% growth in June. It is the first monthly decline in imports since February 2021, when China began lapping up cheap Russian oil, coal, and certain metals after the country invaded Ukraine. However, the decline was offset by a surge in Chinese shipments to its northern neighbor, which grew 52% to $10.28 billion in July after expanding 90.9% a month earlier.
The grim trade numbers could spell further trouble for policymakers in Beijing, whose efforts to shore up business, boost consumer activity, and generally bolster China’s economy have been hampered by a prolonged property sector slump and disappointing domestic demand since the government listed most anti-epidemic measures last December.
Domestic consumption has remained tepid despite a lift in COVID-zero restrictions early this year. Official data due to be released tomorrow is expected to show a decline in consumer prices for July, adding to evidence of the lack of demand. And China’s position as the world’s largest exporter and a major importer means that its lackluster trade figures may reflect the broader weakness in the global economy, fueling concerns of a looming recession.
FDI is down, too
The economy’s waning recovery has also damped confidence among overseas investors. According to figures released by the State Administration of Foreign Exchange (SAFE) on Friday, foreign direct investment (FDI) fell to a 25-year low in China in the three months through June. Direct investment liabilities, a measure of FDI in China, dropped to $4.9 billion — a 76% plunge from a month earlier and down 87% from the same period last year — the lowest quarterly level recorded since 1998.
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