“Weak demand!”
Screamed Chinese trade figures released on Wednesday.
The numbers, which were disappointing, extended a run of lackluster data out of the world’s second-largest economy, where you can use whatever word you like to describe the situation as long as that word isn’t “recovery” or “rebound.”
Shipments abroad contracted 7.5% last month, nearly four times the expected drop, Wednesday’s release showed. It was the first overall decline in three months. Shipments to key locales including the US and Southeast Asia fell double-digits in May.
Base effects are still a factor. Part of the concern around China’s weak data centers on the idea that the bar was low for the YoY comparisons. The country was lapping the Shanghai lockdown comps, so beats should’ve been easy to come by. The comps will get a bit more challenging going forward.
“Although [the slowdown in exports] was partly due to base effects, the underlying momentum has clearly slowed,” SocGen’s Michelle Lam said. “The disappointing export data helps explain the weakness in the manufacturing sector.” As a reminder, PMIs for May were very weak. The official manufacturing gauge printed 48.8, the lowest since December when the Party abandoned “COVID zero.”
“Despite our call for near-term growth resilience in DMs, exports remain a key headwind to China’s manufacturing sector,” Lam went on.
China’s weak exports underscored cautionary remarks from the OECD, which on Wednesday warned that although the global economy “has begun to improve, the recovery will be weak.” The organization projected global GDP growth will moderate to 2.7% this year, a meaningful deceleration from last year’s 3.3% pace. “The upturn remains fragile and risks are tilted to the downside,” the new outlook said.
Although the contraction in China’s imports was shallower than feared, the 4.5% decline was nevertheless indicative of shaky domestic demand. In volume terms, imports of oil and copper recovered, which was notable. IEA Executive Director Fatih Birol on Wednesday told Bloomberg Television that the trajectory of the Chinese economy is more important than unilateral Saudi production cuts when it comes to oil prices. “Of more than two million barrels a day of growth we expect this year in global oil demand, 60% is set to come from China,” he remarked.
Of course, China’s exports are still very high compared to pre-pandemic levels, and the silver lining in the poor data is the ostensible read-through for stimulus. The worse it is, the more likely Beijing will be to make good on sundry promises, implicit and explicit, to bolster the economy. Or so goes the narrative. The CSI 300 is now down around 2% for 2023. H shares are down 4%, and the Hang Seng Tech gauge is underperforming the Nasdaq 100 by — checks watch — 40 percentage points.
For whatever it’s worth, Antony Blinken will apparently travel to China for high-level talks this month. The trip was initially planned for February, but someone spotted a balloon over Montana.
I think one aspect of China’s economic impact, its use of resources, while mentioned from time to time, is mostly ignored. We may not believe all the details in China’s data but “follow the money” tells us that if China is buying a resource they are using it. The idea that 60% of projected growth in oil demand is down to Chinese demand is ample evidence. When they started building 80,000 miles of roads comparable to our interstates, they were sucking up most of the world’s concrete and their buildings were doing the same with copper and other materials. The US uses between 20 and 25% of the world’s natural resources to do what we do, with a bit less than 5% of the world’s population. China has 20% of the population and wants to be as well off as the average EU country. If they get there they may well be using 30% of the world’s stuff. That won’t leave any extra. Then throw in India which will soon have more people than China. Fortunately, the per-capita income in India is only $2200 a year according to the latest info from the World Bank. Talking about how everything will be all right and all of can go to Mars anyhow is just silly. Tech isn’t going to give water to 2 Bil people who can’t get it now, today. We can’t keep growing stuff in the desert with no water. The Nord Pipeline sabotage just wiped out Europe’s surplus supply of gas. The loss of most of the flow from the Colorado River has taken the main surplus supply for the US west (think food from CA’s Central Valley). Then there is the projected loss of most of the water in the Ogallala Aquifer within the decade (a big 50,000 year deal) and there goes the corn and wheat from KA, NE, and other places (seven states in all). Malthus may not have seen the future as clearly as Nostradamus, but he certainly had a point. With all this in front of us what are our 51 governments doing? They are busy passing laws about LGBT rights and who can use which bathroom and who gets to go to their prom, banning books that tell us about our genocide of the country’s indigenous peoples and the slaves we dragged from their meager beds to be sold to people in America to do their work. I’m sorry, but this kind of stupidity just rags my rear. In my lifetime at least 50 years have been wasted by us and the rest of mankind who simply want to control others and avoid dealing with any serious problems, while we go on killing millions of us for no real reason but greed and control. It just makes me tired. If we humans were really made by God in his image, he must not be very good at his job.
The culture wars you speak of are a distraction from the real issues. While the Wyoming public is rabidly debating book bans, abortion rights and hate laws, oil companies are getting approval to pump oilfield wastewater into a drinking water aquifer in a semiarid state that gets 15” of precipitation each year. Check https://wyomingoutdoorcouncil.org/2021/02/08/not-worth-the-gamble-cutting-corners-on-moneta-divide-project-would-threaten-water-source/ if you aren’t too tired to read more bad news.
Thanks to you both. I think crazy politics is our number one problem…
No sympathy for Xi Jinping. The Chinese may or may not become the dominant world power we all suppose they may become. My simple guess is that, beyond just being a bully, they have never actually been here before may not know how to be a world power that’s actually dominant.
The western economies saw opportunities to use the evolving Chinese manufacturing economy in the 80s and 90s, but in today’s world economy, China’s Xi and his politburo are jamming their thumbs in the eyes of customers, squandering their own success, by suggesting we should all accept and abide with the terms of relationship upon which they insist. They live by a communist philosophy. They’re communists who control their economy from the top down. They know what their doing. Freedom of thought, word, and action is for the birds in China.
Xi Jinping is in an economic mess right now and one has to wonder how he will address it. I don’t believe western democracies will continue to abide. I believe the west will slowly find alternative sources of manufacturing. The most significant American company that will change its source of its manufacturing will be Apple. Foxconn noted in the Wall Street Journal in February that they will be manufacturing Apple products in Saigon, Vietnam and in India in the near future. Goodbye, China.
Xi is overplaying his cards. No sympathy.
FoxComm will be assembling products, not producing the chips which power the gizmos we all have come to depend upon.
Thanks for the thought and comment. Agreed. Foxconn is doing what they do. And the best chips are still made in Taiwan. But at the same time, TSMC builds sophisticated fabs in the US and Europe. They’re moving, though slowly.
I can’t imagine how TSMC will manage the transition. But I also can’t imagine they’d let Xi Jinping get his hands on TSMC’s Taiwan fabs. That may not speak well of my imagination. But there are a lot of variables in this matter, including the threat of US intervention. Even the mere threat can serve to enable Taiwan.