China’s Economy Takes Another Hit As Exports Fall 14% In July

In July, China’s exports fell by the most in more than three years as global demand slumped, putting additional pressure on Beijing to find measures to revitalize the world’s second-largest economy.

According to Chinese customs statistics issued on Tuesday, the value of exports decreased 14.5% year on year last month, the largest drop since February 2020, when the initial Covid-19 epidemic damaged trade and output.

It is also the third month in a row that exports have fallen.

According to Capital Economics analysts in a research report released on Tuesday, the dramatic reduction reflects last July’s high number and lower prices. After accounting for seasonality and fluctuations in export pricing, they projected that export volumes fell 0.9% in July compared to June.

However, experts forecast exports to decrease more in the coming months, noting “wider evidence” that global goods demand is declining as epidemic distortions fade and monetary tightening weighs on consumer spending.

During the pandemic years, exports were a rare bright light, offering much-needed assistance to China’s economy as it dealt with strict Covid lockdowns and a collapsing housing market. Last year, they accounted for 17% of China’s GDP.

However, since last October, exports have decreased as rising inflation and interest rates undercut global demand. In developed nations, “the near-term outlook for consumer spending remains challenging, with many still at risk of recessions later this year, albeit mild ones,” they warned.

Weakening exports inflict another damage to China’s economy, which has recently lost steam following a robust start to the year. Deflationary signs are becoming more common, raising fears that China will enter a prolonged period of stagnation. Its effects will be read, researched, and explored later on when the phenomenon reaches its another level in the business cycle.

China’s imports plummeted 12.4% year on year in July, falling short of the 5% reduction predicted in a Reuters survey of analysts.

It adds to signs that domestic demand in the country has weakened, with import volumes falling to their lowest level since the beginning of the year.

Analysts are now urging Beijing to unveil more clear and forceful plans to support the economy, including significant measures to raise demand.

Depreciation Of The Chinese Yuan

A weaker currency may aid by increasing the competitiveness of China’s exports. On Tuesday, the People’s Bank of China, which establishes a daily range within which the yuan can trade, set the currency’s midpoint at 7.1565 to the US dollar, down from the previous day’s 7.138.

The Chinese currency fell in foreign exchange markets as a result of the dismal trade numbers and lower yuan fixing. On Tuesday, the offshore yuan fell 0.3% against the US dollar.

So far, Beijing’s economic stimulus measures have “not been strong enough” to convince investors, according to Ken Cheung, the chief Asian foreign exchange strategist at Mizuho Bank.

“In this context, yuan depreciation could serve as a tool to support China’s exports and facilitate economic recovery.”