Exports traditionally drive China’s economic engine. The figures for June beat analysts’ expectations. But they also reveal problems – for example in trade with Germany.
China’s foreign trade balance is giving rise to some hope in the People’s Republic, which is plagued by sanctions and internal problems. Exports in the export-driven country with around 1.4 billion inhabitants increased significantly in June. According to Chinese customs in Beijing, they rose by 8.6 percent in US dollars compared to the same period last year. However, imports fell by 2.3 percent.
The foreign trade volume of the world’s second-largest economy was 516.6 billion US dollars. The trade surplus was comparatively high at almost 100 billion dollars due to the significantly higher value of exports. In May, China’s exports were already 7.6 percent higher than in the same month last year.
Imports from Germany collapse
Foreign trade with Germany showed a significant increase in exports of 8.5 percent compared to the previous year. Imports from Germany fell by 14.2 percent. “Trade with Germany is running out of steam,” says Maximilian Butek, Executive Board Member of the German Chamber of Commerce in East China.
The private sector in China continues to hold back on investments, which disproportionately affects German companies, as they mainly export capital goods to China. “We still need confidence-building measures from the Chinese government to get the market going,” Butek demands.
In addition, the mood between China and Germany is likely to worsen with the federal government’s recent decision to use Chinese technology in German 5G networks. Berlin agreed with the operators that they would have more time to switch over and could continue to use simple elements from Huawei and ZTE. In return, the providers are committed to a comprehensive exchange. China has already reacted with sharp criticism and accused Germany of discrimination.
Further burden from sanctions
Analysts had predicted a significant increase in Chinese exports of eight percent for June compared to the same period last year. One reason for this was that manufacturers in the People’s Republic brought forward their deliveries in anticipation of tariffs in important export markets. Experts had expected an increase of 2.8 percent in imports. These have now unexpectedly fallen, which also indicates weak domestic demand.
With regard to exports, Chinese trade is again sending more positive signals. However, China must expect further trade restrictions. Canada is considering imposing tariffs on Chinese electric cars. Turkey has already announced this. Indonesia, as an important clothing manufacturing country, is planning to impose high import tariffs on Chinese textiles.
Added to this are the restrictions that already exist in the USA, for example. Washington had already imposed high tariffs on solar cells and electric cars. The EU is planning to impose provisional punitive tariffs on electric cars made in China. Manufacturers must provide security for this. They will only be finally introduced once the decision has passed the EU Parliament, which is expected in November.
Important party meeting coming up
Exports traditionally drive China’s economy. The ruling Communist Party (CP) has set a growth target of around five percent for this year. At the same time, Beijing is struggling with unemployment at home and the real estate industry, which has been ailing for years. Young people in particular are having difficulty finding work. Real estate, in which people had invested their savings due to a lack of profitable alternatives, has lost value. All of this is dampening consumer confidence in the People’s Republic and reducing economic performance.
Analysts recommend that the Chinese government stimulate domestic demand instead of relying on exports, which entail the risk of foreign dependence. Observers are eagerly awaiting a multi-day meeting of top party cadres starting next Monday. The Central Committee of the Communist Party wants to use the meeting to set the economic policy course for the coming years.
However, some experts warned in advance that the meeting, which takes place every five years, should not be expected to produce short-term measures to combat the current problems in China’s economy. Instead, the focus could be on the tax system and the indebtedness of local governments.
Source: Stern
