China announces its biggest drop in exports since 2020 in July

China's exports slumped in July to experience their steepest decline in more than three years, penalized by sluggish demand abroad and the economic slowdown in the country, which are weakening thousands of companies. Exports have historically been a key growth lever for China and this situation has a direct impact on employment in a sector that is now operating in slow motion.

The threat of recession in the United States and Europe, combined with high inflation, has contributed to weakening international demand for Chinese products in recent months. Geopolitical tensions with the United States and the desire of certain Western countries to reduce their dependence on China or to diversify their supply chains also explain this decline.

Last month, sales of Chinese products destined for overseas fell 14.5 percent year on year, according to dollar figures released Tuesday by China Customs. This is their strongest decline since January-February 2020 (-17.2%), when the Chinese economy was practically brought to a standstill by the start of the Covid-19 pandemic. This decline was expected by analysts polled by Bloomberg. But not on such a scale (-13.2%). In June, Chinese exports had already contracted by 12.4% year-on-year.

Last month, exports to Western countries were in the red over one year (-18.6% with the United States, -8.9% with the European Union). On the other hand, they remained robust with Russia (73.4%), confirming the acceleration of the economic rapprochement between the two neighbors since the start of the war in Ukraine. Apart from a brief rebound in March and April, the Asian giant's overseas sales have generally been in constant decline since October 2022.

Last year, the health restrictions linked to “zero Covid” had severely penalized export-oriented companies, due to unexpected closings of factories and difficulties with transport and travel. China finally lifted most of its draconian measures in December 2022, paving the way for a gradual recovery in activity. But the long-awaited rebound is slow to materialize, undermined by domestic consumption weakened by a sluggish economy and a record unemployment rate among young people.

Due to a lack of demand, the Asian giant's imports logically fell in July (-12.4% over one year). This is the ninth consecutive month of decline. The contraction is much stronger than that of June (-6.8%) and the forecasts of analysts polled by Bloomberg (-5.6%).

The trade surplus of the world's second largest economy still reached 80.6 billion dollars (73.3 billion euros), against 70.2 billion dollars a month earlier. The trade figures are the latest in a series of indicators to reflect a loss of steam in China's post-Covid recovery. Chinese growth only increased by 0.8% between the first and second quarters of 2023, according to official figures.

At a time when many economists are advocating a vast recovery plan, the authorities are favoring targeted measures and declarations of intent with regard to the private sector, without conclusive results for the moment. To "facilitate the recovery", Beijing could resort to a "depreciation" of its currency against the dollar in order to "support exports", urges analyst Ken Cheung, of the Japanese bank Mizuho. This measure would technically make the cost of Chinese goods more competitive overseas.

By early Tuesday afternoon, one dollar was trading against 7.20 yuan, its weakest level since November 2022.