Global economy China's export growth likely to stay negative

Exports fell on a high base and weaker external demand. The export slump was largely expected and the weakness was broad-based amid subdued regional manufacturing PMIs and export orders. Specifically, exports to key trading partners, including the US, the EU, ASEAN, South Korea, and Japan, fell between 17% y/y and 23% y/y. Exports to Russia, India, and Africa beat expectations (+51.8% y/y, –9.5% y/y, and –4.9% y/y, respectively).

IT related goods exports slowed further to –18.1% y/y from –16.8% y/y in June. Mechanical and electric goods exports also worsened to –11.9%y/y from –9% y/y in June on broad-based weakness; the only exceptions were cellphones (+2.2% y/y vs. -23.3% y/y in June), and autos (+83.3% y/y vs. +109.9% y/y in June). Low-end consumer goods (including garments, suitcase, furniture, textile, and toys) exports weakened further to –17.8% y/y from –14.6% y/y in June.

Imports fell on weak tech demand and commodity price effects. July import growth fell by a more-than-expected 12.4% y/y (consensus: –6%), in contraction for five straight months. Tech and mechanical & electric goods imports weakened to –11.7% y/y and –11.3% y/y, respectively, from –10.4%y/y and –8.8% y/y in June, due to mid-to-high-teen declines in integrated circuits and semiconductors.

Imports of major commodities fell mainly due to price effects. Specifically, crude oil imports fell 20.8% y/y (vs. –1.4% in June) although the volume rose 17% y/y; coal import growth decelerated notably to 2.2% y/y (vs. 47.6 previously) although the volume rose 67% y/y. Industrial metals, like steel and copper, remained weak at –19.8% y/y and –4.9% y/y, respectively; their volumes contracted at a reduced pace. Iron ore imports declined by 14.9%y/y while the volume was up 2.4% y/y.

The trade balance rose to USD 80bn in July from USD 71bn in June as imports deteriorated more sharply than exports. The merchandise trade balance as of end-July 2023 came in at USD 512bn, versus USD 492bn at end-July 2022; the trade balance with the US declined notably to USD 186bn from USD 243bn last year.

Export growth likely to stay negative; import growth likely to take longer to pick up. Exports are likely to remain weak for the next few months, given the continuing slowdown in DM economies, before a moderate uplift in 4Q as base effects turn more favorable. For the full year, exports may contract by about 5% y/y (year-to-end-July: –5% y/y). Meanwhile, imports may take longer to rebound (year-to-end-July: –7.6% y/y) as policy support only kicks in gradually, and the upside is likely to be restrained by US-related tech restrictions. On balance, China’s net exports are likely to remain a slight drag on GDP growth in 2H (1H: 0.6ppt drag), in our view.

Main contributors - Kathy Li, Yifan Hu

Original report - China's July exports and imports fall again, 8 August 2023.