Chinese Trade - China's exports rise - weak demand presses imports
China's Trade Balance Shows Slight Hope Amid Sanctions and Domestic Issues in the Plagued People's Republic
China's exports showed some signs of hope in the sanctioned and domestically troubled People's Republic, as indicated by the Chinese Customs in Beijing. Exports increased by 8.6% compared to the previous year in US dollar terms. However, imports decreased by 2.3%.
The external trade volume of the second largest economy in the world amounted to 516.6 billion US dollars. The trade surplus was relatively high due to the significantly higher value of exports, with nearly 100 billion dollars. Exports had already increased by 7.6% in May compared to the previous month.
Imports from Germany decline
There was a notable increase in exports to Germany of 8.5% in the previous year. However, imports from the Federal Republic of Germany decreased by 14.2%. "The wind is going out of the trade with Germany," says Maximilian Butek, Managing Director of the German Chamber of Commerce in China.
The private sector in China continues to hold back on investments, disproportionately affecting German companies as they primarily exported investment goods to China. "We still need reassuring measures from the Chinese government to get the market back in swing," Butek demands.
Moreover, the mood between China and Germany worsened with the latest decision of the German government to use Chinese technology in German 5G networks. Berlin reached an agreement with the operators that they would have more time for the transition and could continue to use simple elements from Huawei and ZTE. In return, the providers committed to a comprehensive exchange. China reacted sharply with criticism and accused Germany of discrimination.
Further burden from sanctions
Analysts had predicted a significant increase in Chinese exports of 8% in June compared to the previous year. The reason was also that manufacturers in the People's Republic were anticipating tariffs in important export markets and advanced their shipments. Imports, on the other hand, were expected to increase by 2.8%. However, imports unexpectedly declined, indicating weak domestic demand.
Looking at exports, the Chinese trade is sending positive signals again. However, China must reckon with further trade restrictions. Canada is considering imposing tariffs on Chinese electric cars. The Turks have already announced this. Indonesia, an important manufacturing country for textiles, is planning to impose high tariffs on Chinese textile imports.
Additionally, existing restrictions, such as those in the US, must be taken into account. Washington had already imposed high tariffs on solar panels and electric cars. The EU is planning provisional tariffs on electric cars made in China. The manufacturers must provide guarantees for these. They will only be introduced definitively when the EU Parliament has passed the decision, which is expected in November.
Important Party Congress Approaching
The export traditionally drives China's economic engine. The ruling Communist Party (CPC) set a growth target of roughly 5% for this year. However, Peking is fighting domestic issues such as unemployment and the ailing real estate market. Above all, young people are having trouble finding jobs. Real estate, into which people had invested their savings due to a lack of profitable alternatives, lost value. All this is dampening the consumption mood in the People's Republic and shrinking economic output.
Analysts recommend the Chinese government to stimulate domestic demand instead of relying on exports, which bring the risk of dependency on foreign countries. Observers are looking forward to a several-day meeting of top party cadres starting from next Monday. The Central Committee of the CPC will set the economic policy direction for the coming years at the gathering.
However, some experts warned beforehand that no short-term measures against the current economic problems in China's economy are expected from this five-yearly meeting. Instead, it might be about the tax system and local governments' debt.
The decline in German imports also affects exports from the People's Republic of China, with a decrease of 14.2% in imports from Germany being noted. This trend is concerning for German companies, particularly those in the investment goods sector.
The World Trade Organization (WTO) has expressed concern about the escalating trade tensions between China and the US, as ongoing sanctions can negatively impact the global trade system. This includes the use of US Dollars in international trade, which could potentially shift towards alternative currencies such as the Chinese Yuan.
The East China Sea region has not been exempt from these tensions, with Japan imposing export restrictions on certain high-tech materials to South Korea, further complicating the region's trade dynamics.
In response to US sanctions, China has been encouraging domestic businesses to become more self-sufficient in key industries, leading to increased automation and robotics in factories across the People's Republic. This shift towards automation is expected to continue, transforming the landscape of China's export and import sectors.
The People's Republic of China has been looking to diversify its trade partners, with increased trade activities happening in regions such as Africa and Central Asia. This strategy is part of China's Belt and Road Initiative, which aims to strengthen economic connectivity between different parts of the world.
Despite the challenges and developments in China's foreign trade, the Chinese Yuan has remained stable in the foreign exchange markets, signifying investors' confidence in the country's economic resilience.
