China’s trade falters as demand at home and abroad dwindles

BEIJING, Sept 7 (Reuters) – China’s exports and imports lost momentum in August with growth significantly below forecasts, as rising inflation crippled foreign demand and new COVID restrictions and waves of heat shut down production, reviving downside risks to a faltering economy.

Exports rose 7.1% in August from a year earlier, slowing from an 18.0% rise in July and marking the first slowdown since April, official data showed on Wednesday, well below analysts’ expectations. of an increase of 12.8%.

Outbound shipments have outperformed other economic factors this year, but now face increasing challenges as rising interest rates, inflation and geopolitical tensions hit external demand.

Disappointing trade figures for August rattled global financial markets, which have already been collapsing under a rising dollar and the prospect of much higher US interest rates. read more

“It looks like the weakness in exports came earlier than expected as recent shipping data suggests US and EU demand has already slowed as shipping prices have fallen significantly,” he said. Zhou Hao, Chief Economist at Guotai Junan International.

He expects price effects to continue to disrupt trade and said import growth in real terms had already turned negative since the end of the first quarter, suggesting more headwinds to demand.

In response to the disappointing data, China’s yuan extended losses, shedding 0.36% to 6.98 per dollar and approaching the psychologically crucial 7 mark. read more

Despite languishing around two-year lows, the weakening yuan has failed to give China’s exports the competitive edge they need to offset declining external demand.

The slower growth is also due in part to unflattering comparisons to last year’s strong exports, but was also made worse by more COVID restrictions as infections rose and heat waves disrupted production from factories in the areas. southwest.

The Yiwu export hub imposed a three-day lockdown in early August to contain a COVID outbreak, disrupting local shipments and delivery of Christmas products amid the peak season.

Contrary to the broader trend, auto exports remained strong in August, rising 47% from a year earlier, according to Reuters calculations based on customs data.

In the first eight months, China exported 1.9 million car units, up 44.5%, thanks to strong demand for new energy vehicles in Southeast Asia.

IMPORT CONCERNS

Weak domestic demand, weighed down by the worst heat waves in decades, a housing crisis and sluggish consumption, have stalled imports.

Incoming shipments increased by just 0.3% in August from 2.3% the previous month, well below the forecast increase of 1.1%. Both imports and exports grew at their slowest pace in four months.

Imports of crude oil, iron ore and soybeans from China fell as strict COVID restrictions and extreme heat disrupted domestic production.

However, baking temperatures prompted the fastest rise in coal imports this year as power generators scrambled to source additional fuel to meet surging electricity demand.

“The noticeably slower growth in imports indicates that the sector has faced a wave of headwinds in recent months, which is not expected to abate any time soon,” said Bruce Pang, chief economist at Jones Lang Lasalle.

“Covid outbreaks disrupted supply chains and demand, while energy rationing measures hurt production. The broad dollar strength is also putting pressure on imports.”

This left a narrower trade surplus of $79.39 billion, compared with a record surplus of $101.26 billion in July, marking the lowest since May when Shanghai was emerging from lockdowns.

Chinese policymakers this week signaled a renewed sense of urgency to shore up the flagging economy, saying action was critical in the quarter as data points to a further loss of economic momentum. read more

The central bank said on Monday it would reduce the amount of foreign exchange reserves that financial institutions must hold, a move aimed at curbing the yuan’s recent declines. read more

Reporting by Ellen Zhang and Ryan Woo; Edited by Sam Holmes

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