China’s economy faces a concerning downturn as recent data reveals exports lagging behind expectations while imports register a significant decline. In the January to February period, exports grew by a modest 2.3% in U.S. dollar terms compared to a year earlier. This is notably below the 5% growth anticipated by analysts in a Reuters poll, marking a slowdown not seen since last April.
Sluggish Export Growth
According to the customs authority, the latest figures indicate that the growth rate for exports is at its lowest since April 2023, when it slightly improved by just 1.5% year-on-year. Conversely, imports have experienced a shocking 8.4% decline over the same period, representing the steepest drop since July 2023, which completely blindsided market expectations for a 1% increase. This stark decline suggests a retreat in domestic demand and has left analysts questioning the resilience of China’s economic recovery.
Impact of U.S. Tariffs
The pessimistic outlook for trade has been exacerbated by tariff tensions between the U.S. and China. The imposition of new tariffs by the U.S. administration has led Chinese exporters to swiftly increase their shipments ahead of anticipated hikes. Since late last year, firms have been focused on moving products quickly as a safeguard against further duty increases, with cumulative tariffs escalating to 20% following various rounds initiated by the Trump administration.
As a response, China has retaliated with its own tariffs on U.S. imports, targeting specific products, including energy and agricultural items. According to Gary Ng, a senior economist at Natixis, these ongoing tariff disputes imply a persistent demand for preemptive exports, but forecasts indicate that China’s trade will likely continue facing pressure due to last year’s high trade base and increasing tariffs.
Mixed Trading Results
The overall trade data for the initial months reflects a 2.4% decrease in total trade volume in U.S. dollar terms compared to the previous year. Despite these declines, China’s trade with the U.S. rose 2.4%, with exports growing by 2.3% and imports by 2.7%. However, unless effective measures are taken to mitigate tariffs, trade dynamics are expected to soften as the year progresses.
Moreover, other key trading partners such as the European Union and Japan saw diminished trade volumes, with imports from EU nations falling 5.6%, and exports to these countries only increasing by 0.6%. Although exports to the ASEAN bloc increased by 5.7%, significant drops were noted in steel and rare earth exports. There was also a notable contraction in imports of agricultural goods, particularly in soybeans, down by 14.8%.
Chinese Government’s Response
In light of the growing economic pressures, calls for increased stimulus measures have been amplified among policymakers to enhance domestic consumption and support the faltering housing sector. This has prompted the Chinese government to set an ambitious growth target of around 5% for 2025 while also adjusting inflation expectations to a historically low benchmark, further highlighting the challenges posed by weak domestic demand.
Meanwhile, to stimulate economy recovery, the government has initiated trade-in purchase incentives, extended to various consumer goods, and pledged to issue additional special treasury bonds aimed at bolstering consumer subsidies. As the authorities seek to invigorate domestic consumption and reduce reliance on exports, the latest trade figures underscore a critical need for decisive action to stabilize economic growth.
Overall, the landscape for China’s exports continues to appear uncertain, compounded by external pressures and structural challenges within the economy, prompting analysts to recommend close monitoring of ongoing developments.
