For the first time in over two years, China’s monthly exports fell year-on-year as the global economy cooled off.
As the world’s top export power, China is bearing the consequences of higher inflation in the U.S. and European Union, rising interest rates, lower economic growth, and the end of stimulus payments. In addition, Beijing has pursued a “zero Covid” strategy that has curtailed some economic activity.
Overall, Chinese exports dropped 0.4% year-on-year in October to $298.4 billion — after analysts had predicted a modest boost — after an 5.7% increase in September. Imports declined 0.7% year-on-year to $213.2 billion. Overall, China’s trade surplus with the rest of the world rose 0.5% to $85.2 billion.
“High inflation erodes the purchasing power of consumers overseas,” wrote Hao Zhou, an economist at Guotai Junan International, in a report. “As monetary policy will go deeper into restrictive territory, the risk of economic recession overseas will rise, considerably weighing on global demand. Thus, China’s exports may come under pressure.”
To be sure, China’s gross domestic product rose 3.9% in the third quarter from 2.2% in the first six months of 2022, but the country’s economy is now slowing, say analysts.
What that means in practice is that the world has less money and is buying less stuff made in China.
Exports of household appliances, for example, declined 25.1% to $6.5 billion, and exports of furniture fell 10.4% to $5.8 billion. Exports of high-tech products fell 7.1% to $82.4 billion.
There were exceptions, mostly linked to people getting back outside after the pandemic years. Footwear exports, for example, rose 2.8% to $4.4 billion.
Exports to the U.S., China’s biggest market, declined 12.6% year-on-year to $47 billion. Imports from the U.S. dropped 1.7% to $12.8 billion.
Exports to the EU fell 8.9% to $44.1 billion while imports from the EU declined 5.2% to $21.4 billion.
China continues to do a lot of business with Russia, which it hasn’t sanctioned like the U.S. and Europe. Imports from Moscow, dominated by oil and gas, rose 34.3% year-on-year to $10.2 billion. Chinese buyers have managed to bargain petroleum prices down when negotiating with Russia, and Beijing is selling oil and refined oil products to third countries, TDM data shows. As a dominant market player whose consumption growth is leveling off, China will have more opportunities for arbitrage of key commodities.
China’s economy, like those of the U.S. and Europe, is becoming increasingly stratified. Wealthy middle-upper class consumers in China can now afford to buy a car every few years, which has fueled the growth of the Chinese auto industry, bringing down costs and facilitating exports. Car shipments in October rose 89.3% to $7.1billion.
Higher commodity prices offset the decline in exports of some products. Exports of petroleum products, for example, rose 12.9% to 4.5 million tons by quantity, and rose 56.8% to $3.8 billion by value.
In a sign of a possible recession, China cut imports of natural gas, wood, steel products and fertilizers. China hiked rare earth imports 511.8% but, because those minerals are coveted but essentially not that rare, to only $190 million.
With some countries, China is simply doing less business. Total trade with the post-Brexit UK, for example, shrank to $8.6 billion.
Of course, the big picture for China, the greatest exporting power the world has ever seen, is still more positive than that of the U.S. and EU. In the first 10 months of 2022, overall Chinese exports increased 11.1% to $3 trillion. Imports went up 3.5% to $2.3 trillion, netting a trade surplus of $727.7 billion.