Improvement in China’s trade figures offers hope for economic recovery despite challenges

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On Friday, China unveiled a combination of economic statistics that indicated a gradual improvement in the decline of exports and imports, even though persistent deflationary pressures highlighted the hurdles confronting policymakers in their quest for a more robust economic resurgence.

While China’s recent policy initiatives have started to bring stability to certain sectors of the world’s second-largest economy, ongoing challenges persist. A protracted property market crisis, a global economic slowdown, and geopolitical tensions are still weighing down not only overall economic activity but also eroding confidence among consumers and businesses.

Last month, exports experienced a 6.2% decrease compared to the same period last year. This decline showed some moderation, as it was less severe than the 8.8% drop observed in August, surpassing the expectations of economists who had predicted a 7.6% fall in a Reuters poll.

This trend seemed to find support in recent export data, as indicated by the official factory survey conducted two weeks ago. The survey revealed an improvement in new export orders last month, driven in part by the peak shipping season for Christmas products and favorable base effects.

South Korea’s September exports to China, which serve as a prominent gauge for China’s imports, experienced the most modest rate of decline in 11 months. The preponderance of their trade comprises semiconductors, indicating a growing interest among Chinese manufacturers in sourcing these components for integration into finished products destined for export.

In September, global trade activity, as indicated by the Baltic Dry Index, demonstrated significant growth. However, despite this positive trend, China’s trade still faces a complex and challenging external environment, as noted by Lv Daliang, the spokesperson of the General Administration of Customs. China’s exports to ASEAN countries, its largest trade partner amid escalating tensions with the United States and Europe, contracted further in September.

In terms of commodities, China’s crude oil imports increased by nearly 14% compared to the previous year, while copper imports, widely used in construction, transport, and power sectors, fell by 5.8% year-on-year. Nevertheless, total merchandise imports decreased at a slower pace, down 6.3%, reflecting a gradual recovery in domestic demand, surpassing expectations.

As a result, China’s trade surplus in September was $77.71 billion, exceeding the anticipated $70 billion surplus. Despite some challenges, such as the crisis-hit property sector and uncertainties regarding employment and household income, the domestic demand outlook for China remains uncertain.

China’s credit growth also showed signs of stabilization, with new bank lending reaching 2.31 trillion yuan in September, a substantial increase from the previous month. Economists anticipate additional policy support will be required to ensure economic recovery.

While China’s economy is in the process of recovery and improvement, it may face difficulties and challenges ahead. Premier Li Qiang emphasized the need for policymakers to be aware of these challenges. Despite some deflationary pressures, recent data points to positive indicators, including increased factory activity and retail sales, as well as growth in holiday travel during the Golden Week. Beijing is considering issuing additional sovereign debt for infrastructure projects, suggesting a potential stimulus, although its effects might not be felt until 2024. Many analysts believe that comprehensive measures are necessary to bring the economy back on track, and any measures introduced may take time to yield substantial results.

(Source:  Kevin Yao | Albee Zhang | Shri Navaratnam | Kim Coghill | Reuters)

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