Economy: China’s foreign trade continues to collapse

China’s foreign trade slumped further at the beginning of the year. As the customs administration in Beijing announced, exports from the world’s second largest economy fell by 6.8 percent in US dollars in January and February compared to the same period last year. The drop in exports was weaker than expected. However, imports fell even more sharply than experts had predicted, down 10.2 percent.

China’s trade with Russia, which has been hit by Western sanctions over its war of aggression in Ukraine, rose sharply by 25.9 percent. Chinese imports, including cheap oil and gas, rose 31.3 percent. Exports to Russia increased by 19.8 percent.

Since the invasion began a year ago, China has backed Russian President Vladimir Putin.

Violent corona wave paralyzed the economy

Overall, Chinese foreign trade had already cooled down last year due to the strict corona measures in the country and weaker global demand. Although Beijing reversed course at the beginning of December and lifted most of the pandemic measures, a violent corona wave then paralyzed the economy.

After overcoming the corona outbreak, economists are now expecting an economic recovery. While the economy grew by only three percent in 2022, the government issued a growth target of “around five percent” for this year at the current annual meeting of the People’s Congress in Beijing. The International Monetary Fund (IMF) is even forecasting growth of 5.2 percent.

“The negative growth in exports and imports that has existed since October will continue in the first two months of 2023. The situation with imports is even worsening – which suggests that consumer confidence will continue to be extremely poor and domestic demand will generally be weak,” commented Jens Hildebrandt, executive board member of the German Chamber of Commerce (AHK) in Beijing. The weak numbers made it clear that foreign trade would struggle to provide the necessary impetus for economic growth this year.

China’s Prime Minister Li Keqiang emphasized at the opening of the People’s Congress on Sunday that global inflation will remain high and economic and trade growth around the world is losing momentum. The premier underscored his government’s efforts to attract foreign investment, further integrate China into the global economy and boost trade.

Slump in trade with the US was particularly severe

However, persistently weak foreign demand is likely to continue to put pressure on China’s exports. “That means domestic drivers are now having to lift the heavy lifting,” said Bloomberg economist David Qu. “What is needed are measures to spur spending from consumers who are constrained by weak confidence and reduced incomes.”

The slump in trade with the USA was particularly severe. Chinese exports fell 21.8 percent, while imports from the US fell 5 percent.

With Germany, China also saw its exports fall by 16.7 percent. Chinese imports from Germany fell by only 3.9 percent. Similarly, trade with the European Union declined. Chinese exports to the EU fell 12.2 percent, while imports from the EU fell slightly by 5.5 percent.

However, the sharp drop in Chinese imports does not only point to weak domestic demand, but was also explained by experts as lower commodity prices and a strong US dollar. Despite this mixed picture, foreign trade was described as remaining weak overall, which does not bode well for hoped-for growth this year.

Prospects for exports remain unfavourable

Exports have been an important pillar for the growth of the Chinese economy. Weak consumption due to the strict corona measures and declining consumer confidence could thus be offset. Since the lifting of the strict zero-Covid policy with lockdowns, forced quarantines and mass tests in December, the economy is now gaining momentum again.

However, the prospects for exports remain unfavorable. The Ministry of Commerce in Beijing reported declining orders, lower order volumes and fewer long-term orders.