The unexpected contraction in China’s March exports and imports, which fell below market forecasts, highlights Beijing’s significant tasks in maintaining the country’s shaky economic recovery.
Besides, with consumer spending cooling in advanced economies and the boost from last year’s export price drop fading, China’s foreign trade faces a long march before it can fuel state growth once more, say experts.
China’s exports fell in March after rising in the first two months of the year, highlighting the country’s mixed recovery from the COVID-19 pandemic.
In the January–February period, exports gained 7.1 percent year on year, while imports increased 3.5 percent.
Bright spots in numbers during the first two months this year, especially for commerce and industry, raised analysts’ optimism that China’s goal of achieving roughly 5 percent economic growth this year will be achievable. Manufacturing businesses had also reported growth for the first time in those two months since September, while new export orders rebounded after months of contraction.
China, the world’s second-largest economy, likewise reported a trade surplus of $125 billion, which reached $58.55 billion in March.
“China’s trade growth in both directions reversed back into negative territory following the positive readings seen in the January–February period. Both export and import growth came in below expectations. While part of the slowdown was expected as we had a high base last year, the larger-than-expected retrenchment shows that uncertainties about the revival in global demand remain,” said HSBC Global Research Analysts in a note, viewed by The Epoch Times.
According to HSBC, the decline in trade figures indicates that China will continue to depend on its domestic demand to meet its GDP growth goal.
Throughout much of last year, Chinese exporters encountered significant challenges due to rising interest rates dampening foreign demand. As the U.S. Federal Reserve and other developed nations exhibit little inclination to reduce borrowing costs, manufacturers encounter additional pressures while trying to shore up overseas sales.
Overcapacity Concerns
The drop in exports was mainly due to a larger base compared to March 2023, when exports increased 14.8 percent following the economy’s reopening after stringent COVID-19 controls were lifted.“But the pace of the slowdown in exports was larger than expected, which suggests that it is still premature to call for a sustainable rebound in global demand, especially as monetary conditions in other economies remain tight,” the HSBC note reads.
According to the global research firm, developed markets have lagged behind emerging markets in year-on-year terms, with exports to the European Union and the United States experiencing double-digit contractions, while exports to the Association of Southeast Asian Nations (ASEAN) showed relatively better performance.
On the other hand, consumer products struggled, except for automobiles, which saw a 28 percent increase in March compared to the previous year. This strong performance in auto exports coincides with recent trade tensions, which are likely to continue casting a shadow over exports.
China contends, though, that its production system is significantly more competitive. Yet, even if industrial capacity utilization in China is slightly lower than in many Western countries, the difference is marginal, if at all, according to Natixis Research.
“Given the methodology and data constraints, it is hard to conclude to what extent China has overcapacity,” noted a research report last week, published by Natixis and viewed by The Epoch Times.
However, initial indications suggest that increased strain on inventories persists, with potential warning signs when overcapacity is interpreted as China producing more than its domestic economy can absorb.
Long Road Ahead
Nevertheless, in the backdrop of disappointing imports for March, China’s foreign trade faces a long journey before it can reignite state growth, “given that consumer spending in advanced economies is cooling and the tailwind from last year’s sharp drop in export prices is fading,” Capital Economics wrote in a note last week.Starting in July last year, policymakers have introduced a series of focused measures and have issued billions of dollars in sovereign bonds to enhance infrastructure investment and stimulate sluggish domestic consumption, all aimed at propelling economic growth.
In February, policymakers sanctioned a plan to boost consumer demand as part of additional efforts to stimulate demand. The head of the country’s economic planner projected that this plan could generate an annual market demand of over 5 trillion yuan (about $690 billion).
However, imports dropped 1.9 percent year on year in March, following a 3.5 percent growth in the first two months, falling short of the anticipated 1.4 percent rise.
This fall, coupled with last week’s data revealing that consumer inflation cooled more than anticipated last month while factory-gate deflation continued, underscores sluggish domestic demand, according to experts.
Consequently, HSBC analysts concluded that “Beijing will need to keep a proactive stance to prop up domestic demand as external demand remains wobbly.”
