The Strategist

Surprising Downturn in China's Exports – Deepens Concern about Economic Slowdown

04/13/2015 - 20:26

The slump in China’s exports dashes projections for rebound in second largest economy across the globe.

Surprising Downturn in China's Exports – Deepens Concern about Economic Slowdown
China’s export for March tumbled 15%, which highlighted sputtering economic growth. However, the economists projected an increase of 12% in exports. The decline in exports were quite shocking as it followed a significant increase of 49% in February. China’s imports also declined by 12.3% in March dragged by slumping commodity prices. The weak results raised worries about the adverse impact of rising Yuan on worldwide demand for China’s goods and services.

According to General Administration of Customs (GAC), China witnessed a 13.5% decline in foreign trade volume during the first quarter of 2015. Particularly, the coal imports slipped about 42% in the first quarter of 2015. Moreover, China’s trade surplus for March tumbled substantially to $3.08 billion touching the lowest mark in past 2 years. As a result, China’s trade balance witnessed an absolute collapse in March which is likely to drag down the GDP for first quarter 2015.

The shocking drop in the vital indicators of economic trade balance, hardly had any impact on the stock markets. The seasonal factor that weighed over the economy was the unexpected late timing of Chinese New Year because of which many business activities were not able to pick up until March. This was the most crucial element that led to a sharp slide in exports.
The steep plunge in exports and imports of China sparked tensions about the health of the Chinese economy. The double digit fall was earlier experienced in 2009, when sliding demand knocked the Chinese economy. Weaker domestic consumption, slowdown in real estate market coupled with global economic worries has distressed the China’s economy. Moreover, larger than expected decline in both exports and imports has elevated concerns for the outlook of China’s economy striking the target of 7% GDP growth this year.
The stagnation in construction sector of China, the largest consumer of industrial metals outlines a gloomy outlook which is likely to weigh over commodity imports. China has implemented series of monetary easing measures including slashing interest rates twice and reducing the reserve ratios of major Chinese banks, in order to propel the economy. According to economists, monetary easing is not sufficient to solve the fundamental problems of China.
There are clear chances that the industrial production and retail sales are expected to show disappointing results. Despite the Chinese government’s continuous effort to fuel consumer spending, weak import data indicated softening of domestic demand. Soaring labour costs, higher borrowing costs and rising Yuan is playing a vital role in fading the competitive advantage of China’s goods across the world. Moreover, the torpid growth in China’s trade sector is expected to adversely impact the job growth. However government has made huge efforts to protect the job growth as rise in unemployment will stimulate social unrest and widespread discontent.  A substantial slowdown in world’s second largest economy is expected to have spillover effect on the global economy.

Tags : China