China’s export and import data for May has raised concerns about the global economic recovery, particularly in developed markets. According to the data released by China’s Customs Bureau on Wednesday, exports experienced a sharper decline than anticipated, with a year-on-year slump of 7.5% in May. This contraction far exceeded the forecasted 0.4% fall and marked the largest decline since January. Meanwhile, imports contracted by 4.5%, which was slower than the expected 8.0% decline but still reflective of a downward trend.
Impact on the Asian Region
The news of China’s disappointing trade figures had an immediate impact on Asian stocks, as well as on the yuan and the Australian dollar, which are closely tied to Chinese demand for commodities. This development follows a fading post-pandemic stock rally in China, as small-scale investors have become more bearish on equities and turned towards safer assets amid an uncertain economic recovery.
The declining export and import figures from China have broader implications for the region, as demonstrated by South Korea’s recent data showing a 20.8% slide in shipments to China in May. This decline marked a year of consecutive monthly declines, with semiconductor exports from Korea experiencing a particularly significant drop of 36.2%. Furthermore, Chinese imports of semiconductors fell by 15.3%, indicating weakened demand for consumer electronics and related components.
The effects of faltering demand have also impacted the market for raw materials, with coal imports retracting from their 15-month high in March due to reduced appetite from the power and steel sectors. Additionally, copper imports declined by 4.6% in May compared to the previous year.
Reduced Factory Activity
China’s official purchasing managers’ index (PMI), released last week, provided further evidence of a contracting manufacturing sector. Factory activity in May shrank at a faster rate than anticipated, with subindexes revealing contractions in factory output and new orders, including new exports, for the second consecutive month.
GDP Growth Target for 2023
While China’s economic growth surpassed expectations in the first quarter, analysts are now revising their forecasts for the remainder of the year due to the slowing factory output. The government has set a modest GDP growth target of around 5% for 2023 after falling short of its 2022 goal.
Economists, such as Julian Evans-Pritchard from Capital Economics, anticipate further declines in exports before reaching a bottom later in the year. They attribute this trend to the lagged impact of interest rate hikes in developed economies, which is expected to weaken economic activity and potentially trigger mild recessions in some cases.