China’s exports and imports unexpectedly contracted in October, the first simultaneous contraction since May 2020, as the perfect storm of the Covid-19 pandemic at home and the risk of a global recession dampened demand and darkened the outlook for the struggling economy.
The bleak statistics highlight the challenge for China’s policymakers as they grapple with pandemic prevention measures and try to navigate broader pressures from rising inflation, a sharp rise in global interest rates and a global recession.
Outbound shipments in October fell 0.3 percent from a year earlier, a sharp reversal from a 5.7 percent gain in September, official data showed Monday, and below analysts’ expectations for a 4.3 percent increase. This was the worst performance since May 2020.
The data suggest overall demand is weak and analysts warn of more disappointment for exporters in the coming quarters, as the country’s manufacturing sector and the world’s second-largest economy grapple with a persistent COVID-19 curb and prolonged asset weakness.
Chinese exporters also failed to capitalize on a prolonged weakening of the yuan currency since April and the key end-of-year shopping season, underscoring broader tensions for global consumers and businesses.
The yuan fell on Monday from more than a week’s high against the dollar hit in the previous session, as weak trade data and Beijing’s pledge to continue its tough zero-COVID strategy hurt sentiment.
“Weak export growth reflects both weak external demand and supply disruptions due to the Covid outbreak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing Covid disruptions at Foxconn factories, Apple’s main supplier. .
Apple said it expects lower-than-expected shipments of high-end iPhone 14 models after major production cuts at its virus-hit Zhengzhou plant.
“We expect exports to decline further in the coming quarters…We think aggressive fiscal tightening and real income from higher inflation will push the global economy into recession next year,” said Jichun Huang, an economist at Capital Economics. .
Growth in auto exports by volume also slowed sharply to 60 percent year-on-year from 106 percent in September, according to Reuters calculations based on customs data, reflecting a shift from demand for goods to services in major economies.
Nearly three years into the pandemic, China has stuck to a strict Covid-19 containment policy that has caused huge economic losses and widespread frustration and exhaustion.
Weak October factory and trade data suggest the economy is struggling to break out of the quagmire in the final quarter of 2022 as it reported a faster-than-expected rebound in the third quarter.
The Ukraine war, which has fueled already high inflation globally, has added to geopolitical tensions and further reduced business activity.
Chinese policymakers last week vowed to prioritize economic growth and push for reforms, allaying fears that ideology may take precedence after President Xi Jinping begins a new leadership term and continues disruptive lockdowns without a clear exit strategy.
Importers were hurt by weak domestic demand, partly due to fresh Covid curbs and lockdowns in October.
Inbound shipments fell 0.7 percent from a 0.3 percent gain in September, below forecasts for a 0.1 percent increase, the weakest result since August 2020.
The strong impact on demand for tighter pandemic measures and falling assets was also highlighted across a wide range of Chinese imports; Soybean purchases fell to an eight-year low last month, while imports of copper and coal also fell.
On top of the global slowdown, weak domestic consumption will put further pressure on China’s economy for some time to come, analysts say.
“Insufficient domestic demand is a key obstacle to China’s short-term recovery and long-term growth path,” said Bruce Pang, chief economist at Jones Lang LaSalle.