China’s export decline in May exceeded expectations, while factory output continued to slow down

China's May exports fell more than expected with a continued slowdown in factory output

Business Dialogue learned that on June 7th, according to the data released by the General Administration of Customs, China’s exports shrank for the first time in three months in May, with a much larger drop than expected. Not only that, imports also contracted significantly, factory output continued to slow down, and weak global demand was the main reason.

The data released by the customs showed that China’s exports in May fell by 7.5% to $283.5 billion, far higher than the 0.4% decline predicted by Reuters economists.

After experiencing five months of contraction, China’s exports returned to positive growth in March and April this year. In April, China’s exports increased by 8.5% year-on-year, slightly exceeding expectations. However, the export volume in May decreased significantly, even lower than the level at the beginning of the year.

Hong Hao, chief economist at Grow Investment Group, said that due to the expected recession in the US economy in the second half of the year and the continued pressure to reduce inventory globally, China’s exports will continue to remain weak in the coming months.

The customs data showed that China’s exports to the United States in May fell by 15.1% year-on-year, while exports to the European Union fell by 4.9%. However, in terms of US dollars, China’s exports to Russia in May increased by 8.1% year-on-year.

Poor export performance reflects weak demand for Chinese goods, and poor import performance is also the same because China imports components and materials from abroad to assemble finished products for export. China’s imports in May fell by 4.5% to $217.6 billion, lower than Reuters’ forecast of 8%.

The reason is that weak domestic demand has suppressed orders for natural rubber, synthetic rubber, integrated circuits, and other products. Since October, imports have continued to decline.

However, Capital Economics economist Evans-Pritchard estimates that other analyses of the data show signs of a domestic demand recovery, and imports will continue to recover in the coming quarters as the boost from the reopening will continue to play a role.

Last week, data from South Korea showed that May shipments to China fell by 20.8%, indicating a monthly decline for the year. South Korea’s semiconductor exports fell by 36.2%, indicating weak demand for final manufacturing components.

In fact, China’s factory activity has been declining since March. The official Purchasing Managers’ Index (PMI) released last week showed that factory activity in May contracted faster than expected due to weak demand. The PMI sub-index showed that factory output switched from expansion to contraction and new orders, including exports, fell for the second consecutive month.

In the first five months of this year, Russia was China’s largest trading partner, with a total trade volume growth of 9.9%, followed by the European Union, with a trade growth of 3.6%.

Analysts predict that as the impact of the sharp rise in interest rates seeps into developed economies later this year, China’s exports will further decline. As for imports, they will continue to recover in the coming quarters as the boost from the reopening continues to take effect.

Translator: Ashley/AMZ123

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