Export dip calls for demand, spending boost

China's exports, measured in terms of dollar value, plunged 12.4 percent in June from a year ago, data from the General Administration of Customs showed on July 13.

The reading came in weaker than expected despite a high base during May-July last year.

According to the consensus estimate from Wind Information Co Ltd, a Shanghai-headquartered financial data provider, China's exports were expected to fall by 10.2 percent year-on-year in June, while growing 0.65 percent from the previous month.

Overall, the reading stood at 7.7 percent in the first quarter. It was 6 percent in April, 3.8 percent in May and 0.9 percent in June.

Due to regional flare-ups of COVID-19 cases in China last year, exports in April 2022 edged up some 3.5 percent compared with the same period in 2021, retreating from a 15.4 percent surge in the first quarter. The export growth quickly bounced back to 16.4 percent, 17 percent and 18.1 percent, respectively, in the following three months.

This explains the high base effect for exports in June, which tumbled deeper than expected this year.

Due to such a sharp decrease, exports in the first half of 2023 were down 3.2 percent, compared to a 0.3 percent increase in the Jan-May period.

To be sure, exports from South Korea and Vietnam also dropped 6 percent and 10.3 percent, respectively. As a major manufacturing country, China shares an external environment similar to that in those two nations, highlighted by sluggish demand.

The export structure of South Korea is relatively concentrated, as evidenced by robust automobile shipments and modest semiconductor exports. Relatively speaking, China's industrial chain is broader with stronger resilience, which enabled it to perform better than the other two economies initially.

In the first half, exports from China, South Korea and Vietnam declined by 3.2 percent, 12.3 percent and 12.1 percent, respectively. However, they witnessed a similar level of export drop in June.

Trade structure

The shifting dynamics in China's export growth are also attributable to a changing trade structure.

In March, labor-intensive products such as bags, clothing and toys registered significantly higher export growth rates, while exports of electronic goods remained subdued. This helped China log better export performance than South Korea and Vietnam.

During May and June, exports of Chinese labor-intensive products contracted strikingly from a year ago as exporters had already fulfilled a backlog of orders that had been disrupted by the COVID-19 pandemic. The decline showed the fundamentals of destocking in major overseas economies.

Electronic products, another major category of exports, saw marginal fluctuations over the past months. For instance, exports of cell phones plummeted 23.3 percent year-on-year in June, close to the decline of 25 percent in May and of 23.2 percent during the March-April period.

Sales of semiconductors around the globe remained lackluster. The downward trend began since early 2022, and sales plunged around 21 percent from March to May. It's still unclear as to when sales would pick up.

Shipments of electronic products, such as cell phones and automatic data processing equipment, accounted for 13 percent of China's total exports by the end of 2020, but tumbled to 8.9 percent in the first half of this year.

Automobile exports, a major highlight of China's foreign trade this year, are still growing rapidly. In June, car exports, including chassis, surged 109.9 percent year-on-year. In the first half, car exports rose 108 percent, accounting for 2.8 percent of overall exports.

The "new three" — namely electric vehicles, lithium batteries and solar cells — witnessed a 61.6 percent year-on-year growth in exports in the first half, driving up overall export growth by 1.8 percentage points, data from the GAC showed.

The Reuters Commodity Research Bureau commodity index could serve as an important gauge to predict the export trend. Based on past experience, the year-on-year growth of exports rises in tandem with the year-on-year fluctuation of the CRB index.

Export volume is closely related to prices, which are in step with the CRB index.

In addition, export volume runs in tune with the CRB index since the index, which points to destocking or restocking, has a direct bearing on China's exports.

The CRB index fell 14.2 percent year-on-year in May and 11.3 percent in June. In the first half of July, the figure only dipped 4.7 percent from a year ago.

At the same time, manufacturers' inventories in the United States have moved downward for six quarters since peaking in the first quarter of 2022. The latest data showed that all manufacturing inventories, excluding defense-related items, have hit a historical low.

China's imports, meanwhile, fell by 6.8 percent in June from a year earlier to $214.7 billion, which indicates that domestic demand has not yet improved substantially.

In June, imports of crude oil grew 45.3 percent year-on-year, while iron ore imports climbed 7.4 percent year-on-year. Imports of steel, copper, machine tools and integrated circuits posted negative growth.

With the export number in June remaining weak, there is increased urgency to expand domestic demand and boost consumer spending. Policy steps to sustain the sound momentum of economic activity should be implemented to good effect.

Loan prime rate cuts, policy-backed and development-oriented financial instruments and local debt risk mitigation should be leveraged on priority. Such policy approaches can enable the benefits of the earlier deposit rate cuts to trickle down to the real economy.

The writer is chief economist at GF Securities.

The views don't necessarily reflect those of China Daily.