China’s trade unexpectedly shrinks as Covid curbs, global slowdown jolt demand

People walk near a display advertising the Apple iPhone 14 outside its store in Shanghai yesterday. Apple Inc said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-blighted Zhengzhou plant.

China’s exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020, as a perfect storm of Covid curbs at home and global recession risks dented demand and further darkened the outlook for a struggling economy. The bleak data highlights the challenge for policymakers in China as they press on with pandemic prevention measures and try to navigate broad pressure from surging inflation, sweeping increases in worldwide interest rates and a global slowdown. Outbound shipments in October shrank 0.3% from a year earlier, a sharp turnaround from a 5.7% gain in September, official data showed yesterday, and well below analysts’ expectations for a 4.3% increase. It was the worst performance since May 2020. The data suggests demand remains frail overall, and analysts warn of further gloom for exporters over the coming quarters, heaping more pressure on the country’s manufacturing sector and the world’s second-biggest economy grappling with persistent Covid-19 curbs and protracted property weakness. Chinese exporters weren’t even able to capitalise on a prolonged weakening in the yuan currency since April and the key year-end shopping season, underlining the broadening strains for consumers and businesses worldwide. The yuan yesterday eased 0.4% from a more than one-week high against the dollar reached in the previous session, as the weak trade data and Beijing’s vow to continue with its strict zero-Covid strategy hurt sentiment. “The weak export growth likely reflects both poor external demand as well as the supply disruptions due to Covid outbreaks,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing Covid disruptions at a Foxconn factory, a major Apple supplier, as one example. Apple Inc said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-blighted Zhengzhou plant. “Looking forward, we think exports will fall further over the coming quarters...We think that aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into a recession next year,” said Zichun Huang, economist at Capital Economics. Growth of auto exports in terms of volume also slowed sharply to 60% year-on-year from 106% in September, according to Reuters calculations based on customs data, reflecting a transition from demand for goods to services in major economies. Overall exports to China’s major markets of the United States and European Union also slumped in October, off 12.6% and 9% year-on-year, respectively. Almost three years into the pandemic, China has stuck to a strict Covid-19 containment policy that has exacted a heavy economic toll and caused widespread frustration and fatigue. Feeble October factory and trade figures suggested the economy is struggling to get out of the mire in the last quarter of 2022, after it reported a faster-than-anticipated rebound in the third quarter. The Ukraine war, which sparked a surge in already high inflation globally, has added to geopolitical tensions and further dampened business activity.