China's economic revival hits a rough patch as export numbers in May fell sharply, raising concerns about the fragility of the nation's recovery amid a worldwide faltering demand. The falling demand, particularly from advanced economies, poses a significant hurdle to the world's second-largest economy that had shown stronger than expected growth in the initial quarter.
On Wednesday, data from China's Customs Bureau unveiled a considerable 7.5% drop in exports year-on-year for May. This is a significantly steeper decline than the 0.4% decrease predicted by analysts and the largest since January. Meanwhile, imports saw a less severe contraction of 4.5%, outperforming the anticipated 8.0% decline and also showing improvement over April's 7.9% fall.
Pinpoint Asset Management's chief economist, Zhiwei Zhang, explained, "The weak exports confirm that China needs to rely on domestic demand as the global economy slows." He further stressed the importance of domestic consumption in maintaining economic stability as global demand is expected to further weaken in the latter half of the year.
The disappointing figures indicate a more profound slump than when China faced a COVID-induced closure of its busiest port in Shanghai a year ago. The data adds to the increasing evidence that China's post-COVID economic rebound might be losing momentum, thereby making a strong case for an additional policy stimulus.
Following the release of the data, Asian stocks, the yuan, and the Australian dollar, a currency closely tied to Chinese demand, all took a hit. The economy's recovery has been hindered by wavering demand domestically and overseas, with repercussions felt across Asia.
Semiconductor imports to China, indicative of consumer electronics export market trends, dropped by 15.3%. Concurrently, South Korean data displayed a year-long consistent decline in shipments to China, with semiconductor exports falling 36.2%.
Also, demand for raw materials saw a general decrease, with imports of coal and copper both receding from previous highs.
The recent official purchasing managers' index (PMI) figures underscored the economic slowdown as factory activities in May shrunk at a faster rate than anticipated. Subindexes also reported a contraction in factory output and a decrease in new orders, including exports.
Economic growth outperformed forecasts in Q1, but analysts are revising their predictions downward for the remainder of the year. Julian Evans-Pritchard, head of China economics at Capital Economics, expressed his concerns about the future, saying, "Although interest rates outside of China are near a peak, the lagged impact from the sharp rate hikes is set to weaken activity in developed economies later this year, triggering mild recessions in most cases."