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China’s faltering economy took another beating in July, as both import and export numbers came far below expectations. Imports fell 12.4 percent instead of the five-percent slide that was expected, while exports dropped 14.5 percent against an expected 12.5 percent.
“The grim trade numbers reinforce expectations that economic activity could slow further in the third quarter, with construction, manufacturing and services activity, foreign direct investment, and industrial profits all weakening,” Reuters observed on Tuesday.
The Chinese economy is heavily dependent on exports, and the 14.5-percent drop in July was the worst setback China has suffered since the beginning of the Wuhan coronavirus pandemic in 2020. Analysts said this was partially due to weaker consumer spending in some of China’s biggest foreign customers, who are facing significant economic slowdowns of their own.
Xu Tianchen of the Economist Intelligence Unit, seeking to explain the big miss, said:
Economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports. For example, China is importing more oil but at lower prices; as a result, the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans.
Political tensions also played a role, as exports to the United States and Europe were down by 23.1 percent and 20.6 percent, respectively, a larger decline than could be readily explained by high inflation or a sluggish economy in either of those markets.
The grim July numbers increased pressure on the Chinese government to deliver more economic stimulus, a move it has been reluctant to make, possibly because the central government is worried about spending too much or losing control of the economy.
China also hopes to develop more of a domestic market for many of the goods it ships overseas, but those hopes suffered another setback in July as Chinese consumer demand trended down.
The UK Guardian on Tuesday cited analysts who believe China has “slipped into deflation,” a suspicion that could be confirmed on Wednesday when consumer price data for July will be released. The general projection among economists is a 0.4-percent decline in prices, which were essentially flat the previous month.
Sales in China are slowing dramatically as the economy cools down, leaving retailers with little choice but to slash prices in order to clear huge inventories they accumulated back when the Chinese Communist Party promised a roaring post-pandemic recovery.
