Chinese Economy Stuck in a Rut of Diminishing Returns




The slowdown in the Chinese economy was dramatically underlined Wednesday with very weak May trade data - especially exports, the mainstay of the stuttering recovery this year.

It was the first fall in monthly exports since February and confirms the sobering view that global demand is now so weak (especially in major markets like the US, Europe, Asia and especially the South-east Asian economies) that it can’t handle all the export volumes China is capable of producing and shipping.

Exports fell 7.5% year-on-year to $US283.5 billion, far worse than the 0.4% decline forecast in a Reuters poll.

That was a dramatic turnaround from the 8.5% rise in April.

Customs data released Wednesday showed the value of Chinese exports to the US dropped 15.1% in May from a year earlier, while exports to the European Union fell 4.9%. Chinese exports to ASEAN, however, rose 8.1% in May from a year earlier.

Imports in May dropped by 4.5% from a year ago to $US217.69 billion — that was less than the 7.9% slide in April and the 8% plunge forecast in the Reuters poll.

Imports of some key commodities rose - iron ore, oil (a near record total) and soybeans (a record tonnage because of a hold up in April port inspections in China delayed processing). But imports of coal and copper eased - the latter the key indicator for foreign analysts.

But it was yet another monthly slide and underlines the lacklustre level of demand both domestically, and now externally.

Markets reacted negatively with the Australian dollar, a proxy currency highly sensitive to changes in Chinese demand, eased a few points after the trade data to trade around 66.80 US cents - about where it was on Tuesday after the Reserve Bank’s surprise 0.25% rate rise.

It was the third straight month of fall in imports and comes weak domestic demand, softening commodity prices, and a stronger dollar.

The trade surplus slid as well - to still very large $US65.81 billion, down sharply from the $US90.2 billion in April and the forecast from the market of $US91 billion.

Economists say they now expect the Chinese government to reveal some stimulus measures - perhaps a big cut in the reserve asst ratios of all banks and even a cut in key interest rates on Tuesday, June 20.

The disappointing export figures indicate that the longer-term trend is down, said Hao Hong, chief economist at Grow Investment Group.

China won’t be able depend on trade to boost its economy for “another six months, for sure,” he said, noting a drag from lacklustre US demand, where inflation — and interest rates — remain high.

Imports and export comparisons with 2022 were distorted by the impact of weak demand and activity last year during one of China’s harsh Covid pandemic lockdowns, especially in the huge Shanghai area.


Even though the World Bank lifted its 2023 global economic forecast on Tuesday, the news won’t be much comfort to China with a forecast for world trade to weaken significantly over the next year.

The bank predicts that global trade will slow markedly this year and also predicted there would be a sharp drop in the price of energy and other commodities this year and next.

World trade, which rose 11% in 2021, 6% in 2022, is now forecast to slow to just 1.7% growth this year and edge back up to 2.8% in 2023. That will leave it bouncing along the bottom until well into 2025.

That sluggish growth will hurt China despite the World Bank upgrading the country's growth prospects this year.

The bank forecast that the international economy will expand just 2.1% in 2023 (up from 1.7% in January’s forecast) after growing 3.1% in 2022. Growth though will edge up to 2.4% next year in the new forecast, down from 2.7% in January’s outlook.

Growth is then forecast to recover to 3% in 2025, meaning it will be a fraction short of 2022’s level.

Some of the improvement this year and next has come from an upgrade to US growth.

 In its report Tuesday, the World Bank lifted its US economic growth this year to 1.1%, more than double the growth rate forecast in January.

The bank said the US economy has continued to generate unexpectedly robust job gains — employers added 339,000 workers in May, far more than economists had forecast — even though the Fed has raised the key federal funds rate 10 times in the past 15 months.

But the bank halved America’s 2024 growth forecast to just 0.8% which would be significantly slower than the March, 2023 growth rate of 1.3% (and a tough number for an election year).

The eurozone, which represents the 20 countries that share the euro currency, is expected to post collective growth of 0.4% this year. That, too, marks a slight upgrade: In January, the World Bank had expected no growth at all for the eurozone this year.

But data out Wednesday is expected to show the eurozone saw negative growth in the 4th quarter of 2022 and the three months to the end of this March - a technical recession.

Europe, struggling with higher energy prices caused by the Ukraine war, enjoyed relief from a surprisingly warm winter, which reduced demand for heat and has helped curb inflation. The forecast was despite the tip into recession by the German economy in the March quarter.

But the World Bank remains bullish on China (the forecast was issued before the latest very weak trade data was made public on Wednesday).

The World Bank now expects the Chinese economy to grow at 5.6% (up from 3% in 2022) The world’s second-biggest economy is now expected to grow 5.6% in 2023, up from 3% last year. But 2024’s forecast has been cut from 5% to 4.6%

The World Bank envisions Japan’s growth slowing to 0.8% this year from 1% in 2022.

It foresees India’s growth slowing to a still-strong 6.3% from 7.2% last year.


Name Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.