China Woes Deepen as Trade Suffers Despite Stimulus
Jul 12, 2023
China continues to struggle with the lingering hangover from its pandemic containment strategy.
This “zero COVID” approach locked down much of the economy until December 2022, when Beijing changed its mind and raced to reopen the world’s second-largest economy. Results have disappointed. A spurt of domestic demand juiced up growth in the first quarter as the service sector bloomed, but that fillip seems spent already. Official and private-sector PMI (purchasing managers index) surveys suggest services growth peaked in March, then slid to five-month lows by June.
Meanwhile, sharp bursts of catch-up growth in the U.S. and Eurozone—the East Asian giant’s most important export markets—had long since crested by the time Beijing decided to end mass quarantines. Worse still, China’s belated reopening drove supply chain diversification. Its share of global trade volumes has been falling since early 2021, hitting a three-year low at 11.2% in February 2023. That’s down from a peak of 15% in April 2020.
Policymakers’ attempts at stimulus have underwhelmed so far. A grab-bag of various monetary measures—assorted interest rate reductions and capital injections—yielded only a modest pickup in financing growth. Meanwhile, house prices fell in May for the13th consecutive monthd espite measures to shore up the ailing property market. The share of cities reporting net price gains fell to 65.7% at the same time, marking a three-month low.
June’s trade figures are expected to offer still more negativity. Exports are seen falling 10% while imports decline 4.1% year-on-year, pointing to continued trouble with demand at home and abroad. It may turn out worse still. Data from Citigroup suggests Chinese economic data has increasingly underperformed relative to baseline forecasts since mid-April, warning that analysts’ models are too rosy and opening the door for continued disappointment.
Soggy results would come at a time when the markets seem to be increasingly concerned with recession risk. Resurgent China might have helped cushion the global economy as the Fed leads a spirited disinflationary push, driving up borrowing costs and cooling activity. Data suggesting that conditions for the East Asian behemoth are trending in the wrong direction may amplify growth concerns and hurt cycle-sensitive assets, like stocks and the Australian dollar.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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