China Exports Slump 7.5% in May after Two Months of Growth

· Drop in orders for mobile phones, garments point to subdued demand for Chinese goods

· A drop in orders for mobile phones and garments contributed to a 7.5% decline in outbound shipments to $283.5 billion.

· Imports in May also fell by 4.5% to $217.6 billion as softer domestic demand curbed orders for items such as natural rubber and synthetic, as well as integrated circuits.

· China's shipments to major export destinations in Southeast Asian and the U.S. fell by 10.1% and 1.2% respectively, while the weaker imports were offset by shipments from Russia, which grew by 17.6%

· Boosted by domestic consumption and demand for services following the end of yearslong pandemic curbs, China's economy beat expectations, growing 4.5% in the first quarter.

SHANGHAI -- China's exports contracted in May for the first time in three months as weaker global demand weighed on the country's recovery from the COVID-19 pandemic.

A drop in orders for mobile phones and garments contributed to a 7.5% decline in outbound shipments to $283.5 billion, the country's customs office reported on Wednesday. This compares with a median forecast for a 0.4% fall in a Reuters poll of economists.

Exports have fluctuated in recent months, having expanded in March and April after five months of contraction.

Imports in May also fell by 4.5% to $217.6 billion as softer domestic demand curbed orders for items such as natural rubber and synthetic, as well as integrated circuits. Inbound shipments have continued contracting since October.

"Looking ahead, we expect China's exports will remain subdued, as we anticipate the U.S. economy to enter recession in H2 while global destocking pressures continue to rise," Oxford Economics' senior economist Lloyd Chan wrote in a note after the data release.

"The disappointing activity data (retail sales, industrial production, and fixed asset investment) in April suggests China's domestic demand recovery has lost steam following the reopening-induced bounce in Q1," he added. "This will continue to constrain Chinese goods import growth."

China's shipments to major export destinations in Southeast Asian and the U.S. fell by 10.1% and 1.2% respectively, while the weaker imports were offset by shipments from Russia, which grew by 17.6%

China's factory activity has been falling since March, with the official manufacturing purchasing managers' index (PMI) registering 48.8 in May. The PMI's subindexes that cover production, new orders and raw material inventory contracted in May, hinting at softer demand, not only for exports but also capital investments.

Boosted by domestic consumption and demand for services following the end of yearslong pandemic curbs, China's economy beat expectations, growing 4.5% in the first quarter.

But lackluster manufacturing activity and domestic investments continued to drag on growth, prompting economists at Nomura and Barclays to cut growth projections for China.

The government set a growth target of around 5% in 2023, slightly higher than the 3% in 2022.

"This [trade data] points to subdued global demand for Chinese goods and supports our view that the robust export figures of the previous couple of months reflected distortions to the customs data rather than a turnaround in foreign demand," Julian Evans-Pritchard, head of China Economics at U.K.-based Capital Economics wrote in a note on Wednesday.