BEIJING (BLOOMBERG) - China’s exports rebounded in May as Covid-19-related bottlenecks in production and logistics clear up, but a slowdown looms this year as global consumer demand for goods cools, weakening trade’s ability to act as a driver for economic growth.
Exports in US dollar terms grew 16.9 per cent in May from a year earlier, Customs data showed on Thursday (June 9), accelerating from April’s 3.9 per cent increase and climbing well above an 8 per cent gain projected by economists. Imports rose 4.1 per cent after staying unchanged in the previous month. Economists had expected a 2.8 per cent increase.
While those figures show demand remained solid in May, exporters are reporting a drop in orders as consumers around the world start moving their spending to services instead of goods, darkening the outlook for China’s companies. Soaring inflation in the United States and Europe means households are tightening their belts.
“We always thought China could quickly resolve supply chain disruptions - this is even better than our optimistic view on this point,” said Ms Wei Yao, chief economist and head of research for Asia-Pacific at Societe Generale. “The question from here onwards is demand - western consumers continue to shift from goods to services and are increasingly pressured by inflation."
She added that "external demand will probably soften from here, which means the recovery of domestic demand will be even more important but challenging" given China’s zero-Covid-19 approach.
China’s exports surged 30 per cent in 2021, providing support for the economy as it contended with a property market slump and small Covid-19 outbreaks. By comparison, this year exports are expected to contribute far less to growth, complicating the picture for an economy already under tremendous strain.
This year, China’s gross domestic product is forecast to grow at the slowest pace in decades as real estate continues to drag and the government’s zero-tolerance Covid-19 policy crimps activity.
“Exports may still contribute positively to economic growth, but by a much smaller margin than last year,” said Ms Betty Wang, senior China economist at Australia and New Zealand Banking Group (ANZ). She expects the contribution to be lower than one percentage point.
The trade surplus in the month widened to US$78.8 billion (S$108.4 billion) from US$51.1 billion, with exports worth US$308.25 billion, the most in four months. The data reflects an improvement in trade following an easing of virus outbreaks and a partial recovery in operations at factories and the world’s largest port in Shanghai. Even so, logistics remained backed up, which may have kept shipments from growing even faster.
The dwell time for ships carrying exports from the port has also increased over the past week and remains up 61 per cent compared with March 12 before the lockdown, according to the latest data from logistics information provider Fourkites. This suggests that the port is potentially struggling to keep up with export demand as it returns to normal.
Mr David Qu, China economist for Bloomberg Economics, said: “The rebound is likely to extend into June and July, alongside Shanghai’s reopening. But it won’t last long - Covid-19-zero restrictions, weakening external demand and a higher year-earlier base will cut into export growth further out.”
Vice-Minister for Commerce Wang Shouwen also warned of a number of uncertainties for trade. At a briefing on Wednesday, he highlighted a fragile global economic recovery, high inflation internationally, and logistics bottlenecks within China as potential threats. Even so, Mr Wang said he was confident that China could keep foreign trade growth stable.
Also on Wednesday, Premier Li Keqiang led a State Council meeting calling for further support of foreign trade and investment, saying that it matters to overall growth and employment, according to a report in Xinhua. He urged improvements in the efficiency of port loading and unloading, and transshipment and Customs clearance. He also noted the importance of maintaining the stability of supply chains, and resolving difficulties so that foreign businesses can resume operations.
Also uncertain is whether the US would consider rolling back any of the tariffs imposed on Chinese goods under former president Donald Trump. US Treasury Secretary Janet Yellen told lawmakers on Wednesday that the Biden administration is looking to “reconfigure” those levies, though she would not give a timeline beyond saying changes may come in the “coming weeks”.
“There have been a lot of talks about the tariffs, but it would be overly optimistic to expect any decision to be made soon,” ANZ’s Ms Wang said, adding that it was unlikely the US would remove all China-related tariffs.