Shipping containers are stacked at a port in Lianyungang, in eastern China's Jiangsu province, on April 12.STR/Getty Images
China’s exports contracted sharply in March while imports unexpectedly shrank, undershooting forecasts by big margins, highlighting the stiff task facing policy-makers as they try to bolster a shaky economic recovery.
The dour data represented a setback for the world’s second-largest economy after a generally better-than-expected start to the year. China has struggled to mount a sustainable post-COVID bounce, burdened by a protracted property crisis, mounting local government debts and weak private-sector spending.
Exports from China slumped 7.5 per cent year-on-year last month by value, customs data showed on Friday, the biggest fall since August last year and compared with a 2.3 per cent decline forecast in a Reuters poll of economists. They had risen 7.1 per cent in the January-February period.
The data was released after mainland Chinese stock markets had closed, but Hong Kong’s major indexes extended losses to more than 2 per cent.
“Despite a larger-than-expected year-on-year fall in export values, export volumes edged up to record highs,” analysts at Capital Economics said, suggesting Chinese exporters are continuing to slash prices to maintain sales amid stubbornly weak domestic demand.
Some economists also said a higher base of comparison last year partly led to the export drop, adding that production had jumped last March as many workers recovered from a wave of COVID-19 infections.
In the first quarter, both exports and imports rose 1.5 per cent year-on-year.
Chinese exporters had a tough time for most of last year as soaring interest rates weighed on overseas demand. With the Federal Reserve and other developed countries showing no urgency to cut borrowing costs, manufacturers may face further strains as they try to shore up sales overseas.
Kris Lin, who owns a lighting products factory, spent tens of thousands of yuan to rent a booth at China’s biggest trade fair next week, but he doesn’t have high expectations.
“Fewer and fewer buyers from Europe and the U.S. have been coming to check our products in recent years,” Mr. Lin said.
Analysts warn Western concerns over China’s overcapacity in some industries may bring more trade barriers for the world’s manufacturing hub.
Chinese automakers exported 1.32 million vehicles in the first quarter, up 23.9 per cent from a year earlier.
Customs didn’t give a breakdown of how many of those were electric vehicles, which along with exports of cheap Chinese solar panels and other clean energy goods are fuelling increased frictions with the U.S. and Europe.
China, for its part, has said its production system is simply far more competitive. Industrial capacity utilization in China is lower than in much of the West, but not by much.
While overall exports weakened last month, steel shipments were the highest since July of 2016, and jumped 30.7 per cent in the first quarter.
The trade data comes ahead of first quarter GDP data next Tuesday.
The impact of falling exports in March is unlikely to be large, because real GDP growth is more closely linked to the volume, rather than value of exports, said Tianchen Xu, an economist at the Economist Intelligence Unit.
“However, the data implies falling export prices, which will be a drag on nominal GDP,” he added.
China’s economy likely grew 4.6 per cent in the first quarter from a year earlier – the slowest in a year – a Reuters poll showed on Thursday, maintaining pressure on policy-makers to unveil more stimulus measures.
Responding to a question on overcapacity at a news conference on Friday, the vice head of customs administration Wang Lingjun said: “We don’t think falling producer prices mean the so-called overcapacity, as drops in prices are related to price fluctuations of raw materials, technology upgrades and voluntary surrender of profits by producers.”
Imports for March also disappointed, declining 1.9 per cent year-on-year after 3.5-per-cent growth in the first two months, missing an expected 1.4-per-cent rise.
The weak figure underlined sluggish domestic demand, which was also highlighted by Thursday’s data showing consumer inflation cooled more than expected last month, while factory-gate deflation persisted.
China’s economy got off to a relatively solid start this year after policy-makers rolled out support measures in the second half of 2023 to revive household consumption, private investment and market confidence.
Yet, growth in the Asian giant remains uneven and analysts don’t expect a full-blown revival any time soon mainly owing to a protracted property sector crisis, which some analysts fear could take years to resolve.
With China’s two big traditional growth engines – property and trade – sputtering, policy-makers have been trying to shift to new drivers such as hi-tech and clean energy, though analysts note that will take time.
Rating agency Fitch cut its outlook on China’s sovereign credit rating to negative on Wednesday, citing risks to public finances as growth slows and government debt rises.
China last month set a full-year growth target of around 5 per cent, which analysts have described as ambitious as they said that last year’s 5.2-per-cent expansion came off a COVID-hit 2022.
On the fiscal front, China plans to issue 1 trillion yuan ($190.3-billion) in special ultralong term treasury bonds to support key areas. It also raised the 2024 special bond issuance quota for local governments.
In a further attempt to revive demand, the cabinet last month approved a plan aimed at promoting large-scale equipment upgrades and sales of consumer goods. The head of the country’s economic planner estimated the plan could generate market demand of over 5 trillion yuan annually.