In August, Chinese exports proved foreign tariffs haven’t had a meaningful effect yet.
Exports from China surged far more than expected in August, breathing new life into the hailing Chinese economy. Exports are the main driver of China’s GDP as the country crafted its historic growth by selling products abroad and becoming “the world’s factory”.
Sales to foreign markets increased by 8.7%, far above the 6.7% expected by a Reuters poll of economists. This was the fastest pace since March 2023 and took investors by surprise.
Market analysts and observers believed foreign sanctions would have put a toll on Chinese exports. Western markets like the United States, the EU, the UK, and Canada put tariffs on several Chinese products including electric vehicles. Even markets politically closer to China, like Malaysia and Indonesia, raised barriers against Chinese products.
These nations are afraid cheap products from China could overflow their markets and harm local industries.
Still, exports from China continue to rise, though some believe it’s the last gasp before tariffs come into effect.
On the other hand, imports to China grew to barely 0.5% in August, less than the expected 2% year-on-year increase. This is the fourth month in a row with higher-than-expected exports and lower-than-expected imports, showcasing a fundamental weakness in the Chinese economy.
Falling demand
China’s domestic demand never really recovered from the COVID-19 pandemic, causing the low import levels seen every month this year. Consumer confidence is at historic lows, especially as the real estate market crisis ravages the country’s homeowners.
Since property giant Evergrande declared default in October 2021, trillions of dollars in construction projects across China halted, causing the bubble to burst. A total of $4 trillion of unsold assets are estimated to plague the Chinese real estate market.
As consumer demand weakened, so did consumer and producer prices. Deflation remains a major issue in China, as August inflation increased by just 0.6% year-on-year, less than expected.
Exports are the only sector of the Chinese economy currently not struggling. The Chinese Communist Party announced in early 2024 that the country would focus on new production lines in electric vehicles, lithium-ion batteries, and green technologies.
But if foreign tariffs will work as intended, exports should start declining as well.
Economists urged the People’s Bank of China to take urgent measures in order to rescue the country’s economy. So far, however, Beijing has taken little action, though some baby steps were made.
In any case, most economists agree China will not reach the 5% GDP growth it promised in early 2024. And it’s unlikely its GDP growth will fare any better in the following years.
