China’s exports fall in August compared to what it was a year earlier, reflecting a weak global demand that is putting pressure on the world’s second largest economy.
This has been the fourth consecutive month that exports have dropped for the first time in years as the “global factory” is facing a weak demand at home and abroad.
According to the customs figures, China’s exports fall 8.8% to $284.87 billion in August. Moreover, a similar trend was seen in the imports data as it fell by 7.3% to $216.51 billion. The total trade surplus dropped significantly from $80.6 billion in July to $68.36 billion in August.
However, it must be noted that the recently released numbers for August were less severe than the forecasts. As per a Reuters poll, economists had projected a decline of (9.2%) in August and it had shown an improvement from the previous month’s 14.5% decline.
China’s economy, “A ticking time bomb”?
China is facing numerous economic and financial challenges after the COVID-19, including weak domestic consumer spending, and a severe property crisis. It also has been witnessed that the global demand for Chinese products has dropped as a consequence of coronavirus and the ongoing trade-war with the US.
All of these factors are having a major impact on the Chinese economy and have put the country in one of the toughest economic times in recent history. Another report from the US Census Bureau showed that the share of Chinese goods in the US imports has been at the lowest levels since 2006.
The share of imported goods from China remained low at just 14.6% in the previous year, while it had touched the peak in 2018 with 21.8% import share. Moreover, the Chinese government is also facing a severe real-estate crisis in the country as some of the largest property developers have been in deep financial troubles.
Measures taken by Beijing
Beijing has so far avoided introducing an extensive stimulus program to boost the flailing economy. However, they have opted for a series of measures in recent months to support businesses and the economy.
In a major move to ease out the current economic situation, the country’s central bank has started cutting interest rates. Moreover, Beijing has also announced plans to allow various big cities to reduce the minimum deposit required for home buyers.
Some of the significant measures the government has taken includes, increasing personal income tax allowance for children’s education, and reducing the duty on share trading. The lenders have been incentivized to reduce rates on the existing mortgages.
Ahead of publishing exports figures, Chinese state-run newspaper, The Global Times ran a story criticizing negative comments by western media and politicians on the country’s economy.
It was of view that, “the reality is that the Chinese economy is well on the recovery track with increasingly strong innovation and green development momentum, though the economy faces some difficulties and challenges under the impact of global economic slowdown.”
Moving Ahead
As discussed earlier, the demand for Chinese goods have weakened after the central banks all across the globe have heightened the interest rates to counter rising inflation. Economists are of the view that much of the impact of those interest rate hikes are yet to be seen in countries that are still showing strong consumer spending.
Julian Evans from Capital Economics said that, “Looking ahead, we expect China’s exports to fall further in the coming months before bottoming out toward the end of the year.” He added that, “Most measures of export orders point to a more substantial pullback in foreign demand than has so far been reflected in the customs data.”
Moreover, Chinese currency has also dropped to its lowest point since 2007 after the exports shrank for a fourth consecutive month in August. The renminbi fell down by 0.1% to a low of Rmb7.325 per dollar, even lower than recorded during the COVID-19 lockdowns.
The Chinese currency has fallen by 6% this year altogether amid a disappointing economic activity in the country and a strengthening dollar has piled up the pressure on the local currency.
As per the chief Asia foreign exchange strategist at Mizuho Bank, Ken Cheung, “Crossing this level raises the possibility of the central bank adjusting the currency band to a weaker level.” He added that, “tomorrow’s midpoint fix will be quite an important indicator of whether the PBoC is willing to change its approach to currency management and unleash that depreciation power.”
The People’s bank of China sets a daily trading band midpoint around which the Chinese currency trades 2% in each direction.
