What’s going on?
Demand dealt another blow to China’s prophesied recovery last month, with trade taking a further dip.
What does this mean?
Exports have been China’s economic backbone for years, but now it seems the country’s suffering from a touch of sciatica. See, global demand is slowing, and exports from the “world’s factory” have now dwindled for three straight months. And July’s figures were particularly grim, showing a 14.5% drop in exports (in dollar terms) compared to last year – the sharpest dip since the pandemic hit. Domestic demand is dealing with some aches too. Imports took a 12.4% hit, the steepest drop since January’s Covid wave. Both those numbers were worse than forecast – suggesting that China’s road to recovery will be an uphill one.
Why should I care?
The bigger picture: Read the fine print.
China’s seemingly slack domestic demand is raising eyebrows, but a closer look suggests those import figures might not be so terrible after all. See, they’re based on value, and with global commodity prices dropping, China is still buying in bulk – but at cheaper rates these days. Take oil, for example: in the first seven months of the year, the value of China’s oil imports dipped by over 12% compared to the same period in 2022, but in terms of volume, the country actually brought in more. That’s not to say China’s in the clear, though: the government still needs to make good on its promised pro-growth tactics in order to meet its 5% growth target for 2023.
Zooming out: Trading more than insults.
US-China tensions have been a thorn in China’s side, but there’s a hint of a turnaround these days: the two powerhouses are dialing up the dialogue, with more signs of progress toward stabilizing relations in recent days. And while these latest moves primarily deal with diplomatic topics for now, more renewed connections just might pave the way for smoother economic ties too.
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Originally Posted August 8, 2023 – Demand, The Myth, The Legend
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