China’s economic engine splutters amid tariff wars
Exports squeezed as Bejing struggles with a domestic downturn such as anemic consumer spending
President Xi Jinping’s economic model lies in tatters like the leftover scraps in China’s “advanced manufacturing” factories. Heavily subsidized green tech exports, such as electric vehicles or EVs, wind turbines, and solar panels, have flooded into overseas markets.
The export boom has propped up a domestic economy still reeling from a property meltdown, massive local government debt, and anemic consumer spending.
Rising unemployment and stagnating wages have only added to the economic gloom before China’s General Administration of Customs released the latest export data on Wednesday.
“[Chinese policymakers] will probably look at this and think the export engine is probably going to slow down sooner than they thought,” Louise Loo, of Oxford Economics, told the Financial Times.
“The problem is that the external demand story has never been, in our view, a permanent driver, it was always going to fade,” she added.
By the numbers:
- Last month, exports jumped 7% in dollar terms compared to the same period last year.
- But that was a dramatic drop from earlier predictions of 9.7% growth.
- It was also down on June’s 8.6% rise.
- Imports edged higher at 7.2%, boosted by a stock-piling of high-end chips or semiconductors.
Beijing has good reason to make significant concessions.
Jacob Gunter at the Mercator Institute for China Studies think tank
What it means: “Together with weakness in China’s retail sales, the trade data reinforce our view that 2024 growth is likely to undershoot the official 5% target unless more effective stimulus is adopted,” David Qu, of Bloomberg Economics, said.
Delve deeper: In June, there was a surge of Chinese EV exports into European markets. The move came ahead of European Union tariffs of up to 48%, rolled out on July 5.
Big picture: “Beijing has good reason to make significant concessions to the EU as it is the only major market that remains largely open to China’s EVs,” Jacob Gunter, a senior analyst at the Mercator Institute for China Studies think tank, or MERICS, said.
Between the lines: “With China’s trade surplus at a record US$99 billion in June, the imbalance has spooked the country’s trade partners, who are seeking to protect their domestic industries with tariffs,” Bloomberg News reported.
China Factor comment: The United States had earlier slapped 100% import duties on Chinese electric vehicles to combat unfair state subsidies. A model that strikes at the heart of the country’s manufacturing policy.