By the end of July, China recorded a sharper reduction in import and export indicators compared to initial expectations.
Experts say that the low level of consumer activity in the global market space is a serious threat to the implementation of the recovery scenario of the world’s second-largest economy.
Official data show that Chinese exports declined by 14.5% year-on-year in July. Imports also showed the dynamics of decline. This indicator decreased by 12.4% compared to the result for July last year.
The results of the functioning of China’s trade sphere contribute to the growth of fears that the process of restoring the country’s economic system, which is slow, may worsen in terms of pace. This state of affairs is a factor of pressure on Beijing. The authorities will likely have to take measures to accelerate the economic recovery after the coronavirus pandemic.
By the end of 2022, China’s economy showed growth of 3%. If do not take into account the period of the fight against Covid-19, including restrictions limiting the scale and pace of processes in the financial system and the industrial sector, this indicator is the worst since 1976.
As part of countering the spread of the coronavirus, China has applied one of the toughest strategies in the world. Restrictions on almost all spheres of life remained in force after similar temporary regulations were abolished in many other countries. For example, in March last year, a total quarantine was introduced in the financial center of Shanghai, where the population is about 25 million people. The authorities delivered food packages to citizens who were locked in their homes.
Chinese officials relaxed coronavirus restrictions last November. But since then, the country’s economy has not made a breakthrough in terms of recovery. Among Chinese youth, the unemployment rate exceeded 20% by the end of May. The crisis in the housing sector has undermined faith in the economic recovery.
Weak economic growth in other countries has caused a low level of demand for goods from Chinese manufacturers. Also, geopolitical tensions between China and the United States, and some other countries have become a negative impact factor. The unfavorable state of affairs in the international political arena has prompted international companies to begin to withdraw investments from the Chinese economy.
In July, the third consecutive reduction in the volume of shipments of goods from China abroad was recorded. Currently, there is a sharp drop, similar to that observed in February 2020, when the coronavirus pandemic was at its peak in the Chinese regions.
In July, exports of Chinese goods to the United States decreased by 23.1% year-on-year. Deliveries to the European Union decreased by 20.6%.
Louise Loo from Oxford Economics says that in the foreseeable future, the high level of pressure on foreign trade will continue. According to her, this scenario will be implemented because high borrowing costs and rising cost of living negatively affect economic activity at the global level and reduce consumer demand. She said that in the coming quarters, the background for China’s foreign trade activities may become more complicated.
Steve Clayton, head of private equity funds at investment firm Hargreaves Lansdown, says that China’s position as a major importer means that its low level of activity in the field of trade will be a factor of negative impact on the state of affairs in the global economy.
The cost of commodities, including oil and copper, showed a decline in the background of Chinese reports on economic indicators. The negative dynamic against this background is also characteristic of luxury goods manufacturers who counted on financial and industrial growth in China.
Steve Clayton says that the weakening of the Chinese economic system means a decrease in demand on an international scale. According to him, the problems of this country are a sensitive factor of influence beyond its borders, which confirms the interconnection of world economies.
The Central Bank of China has been following a policy of lowering interest rates over the past few months as part of efforts to stimulate the economic system. Also, local regulators have relaxed the regulatory framework for monitoring the main sectors of the economy, including the technology industry. But some officials resist such measures to one degree or another.
China’s weak economic growth is also evidence that this country has not faced the price increases that have become a problem in many other countries, forcing central banks to decide on a sharp increase in borrowing costs.
As we have reported earlier, China’s Central Bank Calls On Financial Sector to Help Fund Technology Research.
