ANALYSIS: After a Strong Opening, China’s Economy Begins to Falter

Poor import and export news bodes ill for China’s economic prospects

Shipping containers stacked at Suqian port in China's eastern Jiangsu Province on March 26, 2023. STR/AFP via Getty Images

News analysis

Not even a month ago, reports of a first-quarter consumer-spending surge created much enthusiasm about China’s return to economic strength. News that this spending had pushed China’s real gross domestic product (GDP) well ahead of consensus expectations renewed talk that China would surpass the United States as the world’s largest economy.

Even then, a look behind the headline figures offered reason to doubt the enthusiasm. Now import-export news for April, the first month of the new spring quarter, confirms that skepticism.

Overall imports of goods and services from the rest of the world came in for April some 7.9 percent below year-ago levels, an especially remarkable comparison since then China was still under significant “zero-COVID” lockdowns. Imports from South Korea—considered a bell weather of future activity—fell a whopping 26.5 percent. Exports grew, something of a surprise given how weak the American and European markets are. However, at 8.5 percent above year-ago levels, they still exhibited a marked deceleration from March’s 14.8 percent advance.

Weak imports paint a two-panel picture of China’s immediate economic trouble. The first of these offers a view of the Chinese consumer. Though China has been characterized as the “workshop of the world,” a large portion of its consumer goods flow in from abroad. These recent clear signs of a decline in that flow suggest that the so-called revenge spending among consumers is neither as broad-based nor as durable as enthusiasts have claimed. It was apparent even a month ago that this spending surge concentrated on luxury goods, especially high-end consumer services. These import figures seem to confirm that such spending failed to extend to the vast majority of lower- and middle-income Chinese.

The second panel in this picture takes up Chinese business activity. Much of Chinese business, especially the country’s much-praised export machine, depends on imported parts and components. A general drop in imports suggests that these factories and workshops are less active than they might be, especially if the economic recovery were proceeding as Beijing hopes it will. Noteworthy in this regard is the 15.3 percent drop in semiconductor imports. Electronics assembly remains a large part of Chinese business, and this figure says that it is far from booming. Reinforcing this picture is Beijing’s open concern over the negligible growth in private business investment. At last measure, it showed a mere 0.6 percent increase from year-ago levels.

The news on exports is less dramatic but hardly upbeat. On this front, even the statistics ministry issued a warning when it released its GDP figures a few weeks ago. “The situation abroad,” it said, “is still complex and volatile, inadequate domestic demand remains prominent, and the foundation for economic recovery is not solid yet.”

Not only did the pace of growth suffer a sharp deceleration, but April also brought news of a sharp decline in export orders from Beijing’s official manufacturing purchasing managers’ report. With central banks in Europe and the United States raising interest rates to fight inflation, and the prospect of recession in both these important economic regions, there is little reason to look for a positive change in this picture any time soon.

Set against the backdrop of this news, Chinese economic prospects look less uplifting than they did (at least to some) only a few weeks ago. Especially if the United States and/or Europe falls into recession—not at all unlikely—Beijing will have trouble meeting its already reduced 5.0 percent real growth target for 2023.