In May, China saw its export growth for the second consecutive month, with part of the reason potentially being exporters shipping goods ahead of tariff increases in Europe and the United States. Meanwhile, the prolonged real estate crisis has led to weak domestic demand, resulting in a significant decline in China’s import data for May.
Bruce Pang, Chief Economist for JLL Greater China, stated that China’s exports maintained strong growth momentum from the beginning of the year to May. This reflects the large share of Chinese goods in the global market, the favorable exchange rate of the Renminbi, and exporters shipping goods ahead of tariff increases in export markets.
On Friday, June 7th, customs data released by the Chinese authorities showed a 7.6% year-on-year growth in exports for May. However, import growth decelerated rapidly from last month’s 8.4% to 1.8%, highlighting the fragility of domestic consumption.
Economists had previously predicted a 5.7% growth in China’s exports and a 4.3% growth in imports for May.
Despite this, Chinese companies are facing increasingly more obstacles which may make it harder for them to rely on exports to drive economic growth. For example, developed economies like the United States and the European Union are imposing trade barriers in high-tech industries such as electric vehicles.
Tariffs have not yet impacted China’s automobile exports. However, it is expected that the EU will impose new tariffs on Chinese electric vehicles next month, making it more challenging for China to enter the European market.
Pang mentioned that currently, Chinese exporters are still “continuing to ship goods ahead of schedule or rearrange exports through third countries” to avoid tariffs.
Zichun Huang, an analyst at Capital Economics, stated that foreign tariffs are unlikely to immediately threaten exports, but if there is any impact, it would be that speeding up shipments before tariffs may slightly boost exports.
The significant growth in exports may also benefit from a lower comparison base. Rising interest rates and inflation rates in the United States and Europe last year affected overseas demand at that time.
In recent months, a series of data has shown that the recovery of various sectors in the Chinese economy is uneven, exacerbating uncertainties regarding the outlook.
According to the May bulk commodity import data released on Friday, the purchase volume of crude oil and soybeans saw a year-on-year decrease, while copper and iron ore purchases increased.
Despite exceeding expectations in the first quarter, recent indicators reflecting weak domestic consumption have dampened earlier optimism.
The real estate crisis remains the biggest drag on the Chinese economy, with low investor and consumer confidence undermining domestic consumption and weakening business activities.
Last month, although the IMF raised its economic growth forecast for China in 2024, it also warned that issues in the real estate sector pose risks to the Chinese economy.
Due to weak domestic demand, many Chinese steel and construction equipment manufacturers have lost domestic customers and are now seeking markets abroad, leading to declining international steel prices.
By export volume, China’s steel exports last month reached 9.6 million tons, marking the second highest monthly export volume since 2016. However, freight values continue to decline. The data for May has not been published yet, but steel export prices have been declining since the end of 2022, as have prices of many other commodities.
In addition to high-tech industries prioritized by the Chinese government, weak domestic demand has also promoted the export of low-value goods. This may trigger backlash from Asian neighboring countries and prompt Western countries to intensify efforts to address China’s “overcapacity.”