China’s exports fell by 14.5% in July compared with a year earlier, the biggest drop since the start of the COVID-19 pandemic in 2020, according to customs data released on Tuesday. The decline was mainly due to lower prices, while volumes of goods were above pre-pandemic levels. The sharp fall in exports added to the pressure on the ruling Communist Party to reverse an economic slump that has been worsened by the recent outbreak of the Delta variant of the coronavirus.
Exports fall across major markets
China’s exports to its major trading partners all declined in July, reflecting the weakening global demand for Chinese goods amid rising inflation and interest rates. Exports to the United States, China’s largest export market, fell by 23% from a year earlier to $42.3 billion, while imports of American goods retreated by 11.1% to $12 billion. China’s politically sensitive trade surplus with the United States narrowed by 27% to a still-robust $30.3 billion.
Exports to the European Union, China’s second-largest export market, dropped by 16.8% from a year earlier to $39.1 billion, while imports from the bloc rose by 2.7% to $26.5 billion. China’s trade surplus with the EU shrank by 38.6% to $12.6 billion.
Exports to Japan, China’s third-largest export market, plunged by 20.5% from a year earlier to $12.4 billion, while imports from Japan edged up by 0.4% to $14.6 billion. China’s trade deficit with Japan widened by 63.8% to $2.2 billion.
Imports also contract amid weak domestic demand
China’s imports also contracted by 12.4% from a year earlier to $201.2 billion in July, indicating weak domestic demand for foreign goods and services. The decline was steeper than the previous month’s 6.8% fall and was mainly driven by lower commodity prices, such as iron ore, copper and crude oil.
The contraction in imports also reflected the impact of the recent COVID-19 outbreak in China, which has led to lockdowns and travel restrictions in some regions, especially in the eastern province of Jiangsu, where a major port is located. The outbreak has also disrupted the supply chains and production of some industries, such as electronics and automobiles.
China’s global trade surplus narrowed by 20.4% from a record high a year ago to $80.6 billion in July, as exports fell more than imports.
Economic growth slows amid policy challenges
The dismal trade data added to the signs of slowing economic growth in China, which sank to 0.8% in the second quarter from 2.2% in the first quarter, according to official figures. That is equivalent to an annual growth rate of 3.2%, which would be among China’s weakest in three decades.
The ruling Communist Party is facing multiple challenges to shore up the economy, which has been hit by the pandemic, rising debt levels, environmental pressures and geopolitical tensions with the United States and other countries.
The party has promised measures to support entrepreneurs and to encourage home purchases and consumer spending, but has not announced large-scale stimulus spending or tax cuts, as it tries to balance growth and stability.
The party is also preparing for a major political event later this year, the sixth plenum of its Central Committee, which is expected to set the tone for its future policies and leadership succession.
The party is likely to maintain a cautious stance on monetary and fiscal policies, as it seeks to contain inflation and financial risks, while providing targeted support for vulnerable sectors and regions.
However, some analysts have called for more aggressive action to boost growth and confidence, such as cutting interest rates or reserve requirements for banks, or increasing infrastructure spending or social welfare benefits.
Outlook remains uncertain amid pandemic risks
The outlook for China’s trade and economy remains uncertain amid the ongoing pandemic risks and external uncertainties.
The Delta variant of the coronavirus has spread rapidly around the world, posing new challenges for containing the virus and reopening the economies.
China has adopted a zero-tolerance approach to COVID-19 cases, imposing strict lockdowns and mass testing whenever new outbreaks occur.
However, this strategy has also raised questions about its sustainability and effectiveness, as well as its social and economic costs.
Some experts have suggested that China should adopt a more flexible and pragmatic approach, such as allowing some local transmission and focusing on vaccination and treatment.
China has ramped up its vaccination campaign in recent months, with more than 1.8 billion doses administered as of August 7. However, there are still concerns about the efficacy and safety of some of its vaccines, as well as the need for booster shots and the availability of vaccines for children and the elderly.
On the external front, China faces growing trade and political frictions with the United States and other countries, which could affect its access to markets, technology and resources.
The United States has imposed tariffs and sanctions on Chinese goods and entities over various issues, such as human rights, trade practices, technology and security.
China has retaliated with its own measures, such as imposing tariffs and sanctions on American goods and entities, or banning imports of some products, such as Australian coal and wine.
The two sides have also engaged in diplomatic and military confrontations over issues such as Taiwan, Hong Kong, Xinjiang, Tibet, the South China Sea and the origins of the COVID-19 virus.
The tensions have increased the risks of miscalculation and escalation, as well as reduced the prospects of cooperation on global challenges, such as climate change, public health and nuclear proliferation.
China has also faced criticism and pressure from other countries and regions, such as the European Union, Japan, India, Australia and Canada, over its policies and actions on various issues.
China has defended its interests and sovereignty, while also seeking to improve its relations with some of its neighbors and partners, such as Russia, Iran, Pakistan, ASEAN and Africa.
China has also pursued its ambitious Belt and Road Initiative, a global infrastructure and investment project that aims to connect Asia, Europe and Africa through land and sea routes.
However, the initiative has also faced challenges and controversies, such as debt sustainability, environmental impact, governance standards and security implications.
China’s trade and economic performance in the coming months will depend largely on how it manages the pandemic situation at home and abroad, as well as how it handles its relations with the rest of the world.
