Beijing Poor global demand and corona lockdowns in China have caused Chinese foreign trade to collapse unexpectedly. Customs officials announced in Beijing on Wednesday that exports in US dollars fell by 8.7 percent in November compared to the same month last year. It was the second monthly decline in a row.
Imports fell by 10.6 percent and thus also much more sharply than forecast by experts. With a minus of 9.5 percent, foreign trade developed even worse than the 9.3 percent slump at the beginning of the pandemic in May 2020.
A major reason for the decline in exports is weak global demand due to high inflation and energy prices as a result of the Russian war of aggression in Ukraine. But the disruption to the supply chains in China as a result of the strict Chinese zero-Covid policy also makes production more difficult.
China: Lockdowns and the real estate crisis are weighing on the economy
The widespread lockdowns and the ongoing real estate crisis are burdening the second largest economy. This also dampens domestic demand, which explains the fall in imports. In October, imports fell by 0.7 percent, while exports fell by 0.3 percent for the first time in more than two years.
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The downturn in Chinese foreign trade is also affecting German exporters. German exports to China fell by 17.5 percent. China’s exports to Germany also fell by 14.4 percent. The drop in Chinese exports to the US was even larger, down 25.4 percent, while China imported 7.3 percent less from the US.
According to experts, the weakening Chinese economy will find it difficult to cope with the decline in foreign trade because export growth has been an important pillar of the Chinese economy since the pandemic began almost three years ago. Experts have been expecting for some time that the government will clearly miss its growth target of 5.5 percent for this year.
The Chinese economy is unlikely to have grown much in November. According to estimates by the Japanese financial group Nomura, the lockdowns affected cities and regions that contribute up to a fifth of gross domestic product in normal times. Overall growth of just over two percent is therefore expected for the fourth quarter. After 8.1 percent growth in the previous year, the World Bank expects China to grow by just 2.8 percent in 2022.
Lockdowns are causing Chinese government investments to fizzle out
In order to stimulate the economy, the Chinese government has again invested heavily in infrastructure, lowered interest rates, granted tax rebates and made it easier to buy real estate. However, the largest wave of corona infections in the People’s Republic since the beginning of the pandemic almost three years ago and the following largely zero-Covid restrictions have limited the effectiveness of the stimulus measures.
A few weeks ago, and especially after the wave of major protests against the tough Covid measures at the end of November, the authorities have now introduced the first easing of quarantine and compulsory testing. There were ten further relief measures on Wednesday: In the case of mild infections, some citizens are now allowed to isolate themselves at home instead of having to move to a central quarantine camp. Local officials are no longer allowed to designate entire residential complexes as high-risk areas. In addition, a negative PCR test result is no longer required to enter many public places – such as at the entrances to supermarkets and residential complexes.
After a meeting on economic policy chaired by State and Party leader Xi Jinping the day before, the Politburo emphasized in a statement on Wednesday that it wanted to pursue “stability”. A proactive budgetary and prudent monetary policy should be implemented. Measures to prevent mass corona infections and control the virus must be “optimized”. It is important to vigorously strengthen confidence in the market and to stabilize growth, employment and prices.
Nonetheless, the World Bank calls for further structural reforms and warns of financial risks. “In the medium term, China’s economy continues to face a structural downturn,” it said in an analysis. “Potential growth is on a declining trend that reflects unfavorable demographics, sluggish manufacturing growth and increasing constraints of a debt-driven growth model.”
More: Fears of growth weigh on Asian stock exchanges