While China’s exports seem back to the pre-COVID norm, weak imports highlight potential issues in the world’s second-largest economy.
China’s exports increased for the second month in a row in May by more than expected, highlighting a possible rebound from last year’s economic slump. China is the world’s second-largest economy and the biggest exporter of goods to the rest of the globe.
May exports increased by 7.6% compared to the same period one year ago. This was way higher than the 6% expected by Reuters-polled economists.
In April, Chinese exports also rose more than expected. Crucially, China’s industrial production skyrocketed in April, signaling a short-term explosion in exports.
As Beijing battles a potentially crippling real estate crisis, it needs fresh products in large demand across the oceans. Chinese authorities found these products in lithium-ion batteries, solar panels, and electric vehicles (EVs). China is already the world’s largest producer and exporter of these goods, making Western officials fear an overproduction of cheap products flooding their markets.
However, Chinese exports are on the rise also because of increasing demand abroad. As the European Union transitions away from fossil fuels, it needs China’s green technologies.
At the same time, the EU is skeptical about China’s practices and will likely raise protectionist barriers against Beijing in areas like EVs. Last year, the Commission launched an investigation into Chinese subsidies to the EV industry, criticizing their methods as against the spirit of the free market.
Weak domestic demand
Despite the better-than-expected export rise, May imports in the Asian giant rose only by 1.8%, far lower than Reuters’ forecast of 4.2%.
The result highlights demand for Chinese consumers has yet to rebound from the COVID-19 crisis, which ended officially in China only in December 2022. Since then, the country has also been affected by a significant wave of deflation.
April inflation came in at 0.3%, higher than the 0.1% in March but significantly lower than the 1.71% long-term average. Most of the world’s central banks consider 2% a healthy inflationary trend.
The fall in prices hampered China’s economic growth, leading some analysts to believe the country will eventually fall into a “Japan-like” stagnation. The real estate bubble burst could also be another indicator supporting this thesis.
Nevertheless, the IMF increased China’s GDP growth forecast for 2024 to 5%, in line with Beijing’s self-imposed goal. Despite last year’s crisis, 5% is still a massive jump for an advanced economy like China, although far below the pre-COVID annual levels.
