By Ellen Zhang and Ryan Woo
BEIJING (Reuters) – China’s exports and imports unexpectedly contracted in October, the first simultaneous decline since May 2020, as a perfect storm of COVID restrictions in the country and global recession risks weighed on demand and further obscured plus the prospects of a struggling economy.
The grim data highlights the challenge for policymakers in China as they push ahead with pandemic prevention measures and try to weather widespread pressure from rising inflation, sweeping interest rate hikes around the world. and a global slowdown.
Outgoing shipments in October contracted 0.3% from a year earlier, a sharp turn from a 5.7% rise in September, official data showed on Monday, and well below analysts’ expectations of a 4.3% increase. It was the worst performance since May 2020.
Data suggests demand remains fragile overall, with analysts warning of further pessimism for exporters in coming quarters, adding pressure on the country’s manufacturing sector and the world’s second-largest economy facing to persistent COVID-19 restrictions and prolonged property weakness.
Chinese exporters were unable even to capitalize on the prolonged weakening of the yuan’s currency since April and the key year-end buying season, underscoring growing strains for consumers and businesses around the world.
The yuan fell on Monday from a high of more than a week against the dollar reached in the previous session, as weak trade data and Beijing’s promise to continue with its strict zero-COVID strategy damaged confidence.
“Weak export growth likely reflects both poor external demand and supply disruptions due to COVID outbreaks,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing COVID disruptions at a factory in China as an example. Foxconn, a major Apple supplier. .
Apple Inc said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-hit Zhengzhou plant.
“Looking ahead, we believe exports will fall further in the coming quarters… We believe aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into recession next year,” said Zichun Huang, an economist at Capital Economics.
Auto export growth in volume terms also slowed sharply to 60% year-on-year from 106% in September, according to Reuters calculations based on customs data, reflecting a transition in demand for goods to the of services in the main economies.
CHART: China Export-Import Contract in October (https://graphics.reuters.com/GLOBAL-MARKETS/jnpwygodbpw/chart.png)
DOMESTIC PROBLEMS HINDERS GROWTH
Nearly three years into the pandemic, China has adhered to a strict COVID-19 containment policy that has exacted a heavy economic toll and caused widespread frustration and fatigue.
Weak factory and trade figures for October suggested the economy is struggling to get out of a rut in the final quarter of 2022, after it reported a faster-than-expected rebound in the third quarter.
The war in Ukraine, which caused already high inflation to rise globally, has added to geopolitical tensions and further dampened business activity.
Chinese lawmakers pledged last week to prioritize economic growth and press ahead with reforms, easing fears that ideology could take precedence as President Xi Jinping began a new leadership term and disruptive lockdowns continued without a strategy of clear exit in sight.
Tepid domestic demand, partly weighed down by new COVID restrictions and closures in October, hurt importers.
Incoming shipments decreased 0.7% from a 0.3% increase in September, below an expected 0.1% increase, marking the weakest result since August 2020.
The harsh impact on demand from the strict pandemic measures and property slump was also highlighted across a wide range of Chinese imports; Soybean purchases fell to eight-year lows last month, while copper imports fell and coal imports fell after hitting a 10-month high in September.
In addition to the global slowdown, fragile domestic consumption will put more pressure on China’s economy for a while, analysts say.
“Insufficient domestic demand is the main constraint to China’s short-term recovery and long-term growth trajectory,” said Bruce Pang, chief economist at Jones Lang Lasalle.
(This story has been corrected to change October coal imports from a drop to a slowdown, in the penultimate paragraph)
(Reporting by Ellen Zhang and Ryan Woo; Editing by Shri Navaratnam)