Xiaocun Qiu, Zeyu Zhao and Kai Zhang
China’s foreign trade performance in May 2023 seemed to have surprised the market on the downside.
- In USD terms, exports and imports contracted 7.5% and 4.5% on a yoy basis, respectively. In comparison, yoy growth of export and import was 8.5% and -7.9%, respectively, in April. May trade surplus registered USD 65.8 billion, down from 78.8 billion at the same time last year.
- RMB depreciation may have played a role in dragging the headline trade growth. The onshore CNY weakened 2.3% throughout May, implying lower unit prices of export and import. Therefore, if we examine China’s foreign trade from the perspective of quantities, the decrease should be less sharp.
Sluggish external demand is another important factor.
- Without exception, China’s exports to major destinations, including the US, EU, Japan, and ASEAN, decreased drastically in May.
- We expect this to be primarily driven by weak demand from these regions: the manufacturing PMIs compiled by S&P suggest the domestic demand of developed countries has largely remained in the contraction territory since the second half of 2022.
China’s deteriorating relationship with other countries also exacerbated its exporting situation.?
- It is old news that many foreign companies have been seeking and using alternatives to Chinese suppliers.
- Zooming into the US data, we can see that its import from China has witnessed the most drastic decline compared to other major trading partners.
