China’s exports shrank last month amid ongoing COVID-19 restrictions in the country.
Exports dropped 0.3% annually in USD terms in October, the first negative recording since May 2020. The recording was in stark contrast to the 4.5% growth the market had anticipated and far below the 5.7% expansion China experienced the month prior.
In particular, China’s exports to the United States shrank by 12.6% annually in October, the third consecutive month of contraction. The U.S. is China’s largest single trading partner. In 2021 alone, Chinese exports to the United States totaled over $577 billion.
While much of the world has dropped lockdowns and strict masking requirements, these measures persist in China. The Chinese economy continues to be suffocated by often severe bouts of restrictions under the central government’s zero-COVID policy. Beijing maintains a rapid elimination strategy, quarantining people thought to have encountered COVID-positive individuals.
The latest export readings also highlight China’s vulnerability to economic challenges faced outside its borders. With central banks worldwide continuing to implement aggressive interest rate tightening, China faces a downstream impact on its trade.
Hao Zhou, the chief economist at the investment bank Guotai Junan International in Hong Kong, said, “Consumer preferences overseas have changed, and the decline in goods consumption undermines the demand for China’s exports.” According to Hao, the risk of recession is growing overseas and “weighing on global demand.”
In addition to a looming global recession and persistent lockdowns, China is also wrestling with a tumultuous housing market that has been likened to a Ponzi scheme. According to Citigroup, a third of all property loans in the country are now classified as bad debt. To make matters worse, China’s housing market is massive, accounting for upwards of 30% of the country’s gross domestic product.
While China’s economy grew 3.9% annually in the latest quarter, it fell short of a 5.5% target, already a 30-year low. Headwinds in the economy also suppressed consumer demand, with retail sales up 2.5% annually in September, the lowest amount in four months.
The equity market in China enjoyed some short-lived optimism recently on rumors that Beijing was considering easing COVID restrictions. According to the central government, however, no such plans exist.
Like exports, China’s imports have similarly contracted. In October, imports dropped for the first time in over two years, falling 0.7% annually in dollar terms. Economists had expected a modest 0.1% year-over-year growth.
