Alarm bells as Chinese Exports fall by 7.5 per cent in May

China’s trade surplus unexpectedly fell to a one-year low in May, data showed on June 7th, hit chiefly by a sharp drop in exports, although the expected drop in imports pointed to some improvement in local demand. The sharp fall in exports is attributed to shrinking demand in United States and EU countries. India’s exports also fell in April.

The unexpected drop in the trade surplus was largely driven by a bigger-than-expected, 7.5 per cent decline in exports in May from the same period last year. The figure missed expectations for a reading of 8 per cent, and reversed an 8.5 per cent rise in exports seen through April.

The reading highlights the growing headwinds faced by the Chinese economy this year, as it grapples with weak overseas demand for locally produced goods. Chinese manufacturing activity- a bellwether of local economic activity- also struggled through May as foreign demand remained poor. 

Exports had risen for the past three months as local manufacturers raced to meet pending orders after the country relaxed anti-COVID restrictions earlier this year. But with that backlog cleared, Chinese firms are facing a dearth of new orders. Slowing economic growth in Europe and the U.S. is expected to keep Chinese exports depressed this year, as both regions, which are major consumers of Chinese goods, grapple with high inflation and interest rates.

Still, Chinese demand somewhat improved as manufacturers moved to increase their raw material inventories, on the hopes that conditions will improve in the coming months.

China’s imports fell 4.5 per cent in May.