If you need any more signs that China’s economy is floundering, look no further. Trade plunged by 8.3% year on year (YOY) in July. The expectation was for a 1.5% YOY drop. That’s disastrous, to put it mildly.
But that’s not the worst of it. The pace of decline is accelerating.
Trade recovered marginally in June, up 2.8% on May. But it didn’t last. It fell again in July, down by 3.6% from June. That marks the biggest decline in over four months.
What caused this decline?
The Eurozone’s ongoing economic woes led the way. Chinese exports are crashing on the back of softer demand in Europe. Exports to Europe declined by 12.3% YOY in July. That compares poorly to a 3.4% YOY drop in June.
The news isn’t much better elsewhere.
Exports to the US fell by 1.3% in July YOY. On the surface that’s not as bad as Europe. But it’s worse considering trade was up 12% YOY in June.
As for Japan, trade relations reached a worrying low. Exports fell by 13% YOY in July. That’s up on June’s figure, which saw a 6% decline.
Elsewhere in the region, South East Asian trade bucked the trend.
Exports to ASEAN nations grew 1.4% YOY in July. But even this is down over June, which saw YOY growth of 8.4%.
Even trade with states China considers its own deteriorated. Exports to Hong Kong declined 14.9% YOY in July. That’s significantly worse than the 0.5% YOY drop in June.
What’s all this mean?
It tells us China’s economy is tanking — and fast. It supports last week’s news of a slowdown in industrial production.
It’s the first period of clustered trade declines since the GFC. And it makes achieving 7% GDP growth a hard task. Exports may never recover to last decade’s peaks.
But the government is desperate to prove things aren’t as bad as they look.
Chinese authorities announced 7% YOY growth for the year ended in June. But no one took the official line seriously. Creative accounting was clearly at play.
Will lightning strike twice? With these export figures — not likely.
China risks entering a drawn out period of sustained economic decline. Going back to where things were is impossible.
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Chinese trade: Imports falling too
You’re no doubt aware by now of China’s economic transition. The export-led economy is turning towards consumerism. But this doesn’t excuse the terrible trade figures. They’re concerning however you spin it.
But import data paints a troubling picture of this transition.
Imports into China fell by 8.1% YOY in July. That’s marginally worse than the expected 8% decline. But the month to month trend is worrying. Imports are down again from the 6.1% YOY drop in June.
Demand for goods is falling. And it raises questions about the future of consumer driven growth. China’s economy can’t rely on the exports to save it from recession. That means consumers need to lift spending.
But the import data tells us a different story. Both exports and imports are falling. Avoiding economic decline isn’t getting any easier.
China to lower rates again
With exports falling, the Chinese central bank (PBOC) will act soon.
Weak export growth is taking its toll on the Chinese yuan. But questions over the government’s desire to devalue the yuan remain. That’s because China has grander ambitions. It hopes the yuan will attain reserve currency status in due time. Devaluing the yuan too much won’t help them in their aims. But it would ease pressure on exporters. And they need all the help they can get.
But maybe China has no choice in the matter.
The trade data could force the hand of policymakers. We’ve seen how active they’ve been in propping up stock markets. We can expect more of the same with the economy. That means more rate cuts, laxer lending requirements, and a weaker yuan.
China is about to join the international currency wars big time. The global drive towards economic ruin is gathering pace.
Contributor, Markets and Money
PS: China’s slowdown will impact Australia too. How can it not? China is our biggest trading partner.
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