Chinese Exports Cool in Latest Warning Sign on Global Trade

After three years of export-driven growth, Beijing is hoping domestic consumers can drive the next stage of the recovery

Chinese export growth slowed in April as global trade cooled, underlining the importance of domestic spending as the main engine for the world’s second-largest economy after three years of strict Covid-19 controls.

The figures add to signs of softness in global trade as spending slows in the U.S. and Europe. Consumers and businesses are confronting steepening interest rates, persistent inflation and pockets of instability in the banking sector. Many economists expect recessions in advanced economies later this year.

The global slowdown means trade is unlikely to play such a pivotal role in driving China’s economy as it did during the first years of the pandemic, when Western consumers flush with stimulus checks spent big on new computers, sports gear and home-office equipment to tide them through long spells working from home.

Instead, China’s consumers are tipped to power growth as people resume eating out, traveling and shopping after a painful several years of sporadic lockdowns that hit jobs and daily life.

The question for many economists is whether a consumer-led recovery is sustainable. Unemployment is stubbornly high in China, especially among young people, and high savings suggest households are wary of splurging too much too soon.

For the global economy, weak import data published Tuesday imply China’s revival will be primarily a domestic affair, focused on services. That contrasts with previous episodes of strong growth in China that had potent consequences for global demand for raw materials, machinery and energy.

China’s post-Covid recovery “may have limited positive spillover effects for the rest of the world,” said Ting Lu, chief China economist at Nomura in Hong Kong.

Exports from China rose 8.5% in April compared with a year earlier, China’s General Administration of Customs said Tuesday, a weaker pace than the 14.8% year-over-year jump recorded in March, when Chinese trade got a lift thanks to surging trade with Russia amid Western sanctions over Moscow’s invasion of Ukraine.

April’s export increase benefited from a comparison with weak figures in April 2022, when Shanghai was locked down in an effort to control an outbreak of the fast-spreading Omicron variant. When compared with March in month-over-month terms, exports from China to the rest of the world in April shrank 6.4%, to $295 billion.

Taken together, the data suggest China’s export engine is beginning to sputter, in line with softness in overseas sales by other key exporting nations in Asia. April exports from South Korea were 14% lower compared with a year earlier. Exports from Taiwan were down by an annual 13% in April, though that marked an improvement from a 19% drop in March.

“The downturn in Chinese exports may still have some way to run before bottoming out later this year,” Zichun Huang, China economist at Capital Economics, told clients in a note Tuesday.

The world’s second-largest economy grew an annual 4.5% in the first three months of the year and is expected to notch a faster pace of growth in the second quarter, putting it on course to match or exceed the government’s target of around 5% expansion for the year as a whole. Gross domestic product rose just 3% in 2022, one of its worst results in decades.

Data last week showed Chinese travelers hit the road en masse during the annual Labor Day holiday, an encouraging sign that the country’s economic rebound is on track even as factories and exports falter.

An official gauge of activity in manufacturing declined unexpectedly in April, falling to 49.2 from the previous month’s 51.9 reading, suggesting activity in the sector shrank over the past month.

The Politburo, the Communist Party’s top policy-making body, in a statement in late April celebrated the strength of China’s recovery so far but acknowledged a durable revival isn’t yet assured, echoing economists’ concern over the durability of consumption and a continuing downturn in real estate.

“Demand is still insufficient,” the Politburo said, according to state media. “Many difficulties and challenges still need to be overcome to promote high-quality development.”

Highlighting the uncertainty, Tuesday’s data showed imports falling 7.9% in April from a year earlier, an unexpectedly weak result. Economists said the drop likely reflects subdued appetite for goods as consumers favor spending on services, as well as weak demand for raw materials and components that feed into exports.

That weakness in imports boosted China’s trade surplus in April to more than $90 billion, from $88 billion in March, despite the slowdown in exports. Exports to the U.S. fell by an annual 6.5%.