China's trade tumbles sharply in Dec, clouds 2023 growth outlook

China’s exports shrank sharply in December as global demand cooled, highlighting risks to the country’s economic recovery this year, but a more modest decline in imports reinforced views that domestic demand will slowly recover in coming months.

While imports are expected to ride a wave of pent-up demand after China dropped its tough Covid-19 measures in December, its exports are seen weakening well into the new year as the global economy teeters on the brink of recession.

“The weak export growth highlights the importance of boosting domestic demand as the key driver for the economy in 2023,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding markets expect Beijing to announce more policies to support consumption.

Exports contracted 9.9 per cent year on year in December, extending a 8.7 per cent drop in November, though slightly beating expectations, customs data showed on Friday. The drop was the worst since February 2020.

Reflecting faltering world demand, outbound shipments to the United States shrank 19.5 per cent in December, while those to the European Union fell 17.5 per cent, according to Reuters.

Despite the sharp fall-off in shipments in the last few months, China’s total exports rose 7 per cent in 2022 thanks to its strong trade with Southeast Asian nations as well as an export boom of new energy vehicles. Still, growth was a far cry from a 29.6 per cent gain in 2021.

Imports fell 7.5 per cent last month, from a 10.6 per cent in November and better than a forecast 9.8 per cent decline.

China’s 2022 trade surplus hit an all-time peak of $877.6 billion, the highest since records started in 1950, compared with $670.4 billion in 2021.

Domestic demand key to recovery

Boosting domestic consumption will be vital to Beijing’s recovery plans, imports rose only 1.1 per cent last year, down sharply from 30 per cent growth in 2021.

China’s purchases of coal and copper shrank in December, as industrial activity slowed. Policymakers are set to increase support for the economy. 

Measures to ease a crippling funding crunch in the property sector could revive home sales and boost imports of industrial materials from iron ore to copper.

Weak global demand could temper economic recovery

China’s commerce ministry said that slowing external demand and the rising risks of a global recession are posing the biggest pressures to the country’s trade stabilisation, leaving “arduous tasks.”

The economy grew 2.8 per cent in 2022, well below the target of 5.5 per cent. Q4 and 2022 Gross Domestic Product data will be released on January 17. 

IMF said on Thursday she expected China to become a net contributor to the global economy by mid-2023.

But some manufacturers remain cautious about the outlook.