China Surprises With Exports Data: What's Triggering A Slowdown Despite Weak Yuan?

China’s exports and imports have grown at their slowest pace in four months in August dragged by an inflation-driven slump in overseas demand and a disrupted domestic output due to COVID-19 lockdowns and heatwaves.

Exports grew 7.1% in August compared to a year earlier, down from an 18% gain in July, reported Reuters, well below analysts' expectations of a 12.8% rise. 

Imports remained tepid, growing only 0.3% in August compared to 2.3% in July, against a forecast for a 1.1% rise, according to the report.

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As a result, the trade surplus narrowed to $79.39 billion, compared with a $101.26 billion surplus in July — a record figure for a single-month goods trade balance for any nation in history — reported Reuters.

Subdued Demand: A notable factor would be that despite the yuan falling to a two-year low, China’s exports have not received any substantial boost. This clearly reflects that demand remains sluggish in overseas markets.

Part of that could be attributed to a fall in domestic output, disrupted by lockdowns. Export hub Yiwu mandated a three-day lockdown in early August to contain a COVID outbreak, disrupting local shipments and delivery of Christmas goods during the peak season, reported Reuters.

Expert Take: Bruce Pang, a chief economist at Jones Lang Lasalle told Reuters the remarkably slower imports growth indicated the sector has faced a wave of headwinds in recent months, which is not expected to ease anytime soon. “Power rationing measures hurt production. The broad dollar strength also brings pressure on imports,” he said.