China’s trade is resulting in reduced demand at home and abroad

An aerial view shows containers and cargo ships at Qingdao port in China’s Shandong province, May 9, 2022. The photo was taken by drone. China Daily via REUTERS

BEIJING, Sept 7 (Reuters) – China’s exports and imports lost momentum in August as rising inflation dampened overseas demand and new COVID restrictions and heat waves disrupted output and revived downside risks to the shaky economy.

Exports rose 7.1% in August from a year earlier, official data showed on Wednesday, slowing from an 18.0% increase in July and marking the first slowdown since April, well below analysts’ expectations for a 12.8% rise.

Outbound shipments have outperformed other economic factors this year, but now face mounting challenges as rising interest rates, inflation and geopolitical tensions erode foreign demand.

Disappointing August trade figures rattled global financial markets, which were already reeling under the prospect of a stronger dollar and higher US interest rates. read more

“It appears that the export softening has come sooner than expected as the latest shipping data shows that demand from the US and EU has already slowed as shipping prices have eased significantly,” said Zhou Hao, chief economist at Guotai Junan International.

He expects price effects to continue to disrupt trade, saying import growth in real terms has already turned negative since the end of the first quarter, suggesting more headwinds for demand.

In response to the disappointing data, the Chinese yuan extended its losses, losing 0.36% to 6.98 per dollar and nearing the psychologically important 7 point. read more

Despite weakening around two-year lows, the weakening yuan failed to give Chinese exports the competitive edge needed to soften foreign demand.

The slow growth also compares favorably with last year’s strong exports, which have also been worsened by further COVID restrictions as acute infections and heat waves disrupted factory production in southwestern regions.

Export hub Yiw imposed a three-day lockdown in early August to contain a COVID outbreak that has hampered local shipments and delivery of Christmas goods during the peak season.

Bucking a broader trend, auto exports remained strong in August, rising 47% from a year earlier, according to Reuters estimates based on customs data.

In the first eight months, China exported 1.9 million vehicles, up 44.5%, supported by strong demand for new energy vehicles in Southeast Asia.

Import anxiety

Weak domestic demand, exacerbated by the worst heat waves in decades, a property crisis and sluggish consumption, has crippled imports.

Incoming shipments rose just 0.3% in August from 2.3% in the previous month, well below forecasts for a 1.1% increase. Both imports and exports grew at their slowest pace in four months.

China’s imports of crude oil, iron ore and soybeans fell as strict COVID restrictions and extreme heat disrupted domestic production.

However, baking temperatures led to the fastest increase in coal imports this year as power generators sought additional fuel to meet rising electricity demand.

“A marked slowdown in import growth has signaled that the sector has been facing a headwind in recent months that is not expected to abate anytime soon,” said Bruce Pang, chief economist at Jones Lang Lasalle.

“The COVID outbreaks have disrupted supply chains and demand, while energy rationing measures have hurt manufacturing. The dollar’s broad strength is also putting pressure on imports.”

That produced a narrower trade surplus of $79.39 billion, compared with a record surplus of $101.26 billion in July, the lowest since May, when Shanghai emerged from lockdowns.

Chinese policymakers this week signaled a renewed sense of urgency to boost the economy, saying activity in the quarter was critical as it signaled a further loss of economic momentum. read more

The central bank said on Monday it would reduce the amount of foreign exchange reserves financial institutions must hold, a move aimed at slowing the yuan’s recent declines. read more

Reporting by Ellen Zhang and Ryan Woo; Edited by Sam Holmes

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