Yukun Zhang, Qiaoyi Li, Ellen Zhang, Ryan Woo
BEIJING (Reuters) – Cina’s export growth slowed to its first three months’ decline in May as US tariffs denounced freight, and factory gate deflation deepened to its worst level in two years, putting pressure on the world’s second largest economy, both domestically and externally.
The shaking of the bond between the world trade war and Sino-US trade has been hampering the global growth of the world in the past two months, along with Chinese exporters and Pacific business partners, on a roller coaster ride.
Customs data highlighting the impact on US tariffs showed that exports to the US to China plummeted at a 34.5% value condition in May compared to the previous year.
Total exports from Asian economic giants grew 4.8% year-on-year last month, slowing down from the 8.1% jump in April, missing the expected 5.0% growth in Reuters polls, customs data showed on Monday despite lowering US tariffs on Chinese goods that took effect in early April.
“May data may continue to decline due to peak tariff periods,” said Lin Song, ING’s chief economist in China.
Song said there was still a front load of packages due to tariff risks, and accelerated sales to regions outside the US helped support China’s exports.
Imports fell 3.4% year-on-year, deeper than the 0.2% decline in April, worse than the 0.9% decline expected by Reuters polls.
Exports rose 12.4% year-on-year and 8.1% in March and April, as factories rushed to freight from US and other overseas manufacturers to avoid collecting large amounts of Trump from China and the world.
Chinese exporters found some rest in May as Beijing and Washington agreed to suspend most taxes for 90 days, but tensions between the two largest economies in the world remain high, with negotiations underway on issues from China’s rare earth control to Taiwan.
China and the US trade representatives will resume their meeting in London on Monday after a call between top leaders on Thursday.
US imports from China also lost more ground, down 18.1% from the 13.8% slide in April.
Capital Economics economist Zichun Huang expects slower export growth to “partially reverse this month,” as it reflects a decline in US orders before the trade ceasefire, but warns that rising tariff levels will knock shipments again by the end of the year.
China’s rare earth exports jumped sharply in May despite export restrictions on certain types of rare earth products that cause plant closures across the global automotive supply chain.
The latest figures do not distinguish between the 17 rare earth elements and related products, but some of them are not subject to restrictions. A clear image of curb impact on exports will only be available if detailed data is released on June 20th.
China’s trade surplus reached $10003.22 billion, up from $961.8 billion the previous month.
Other data released on Monday also showed China’s crude oil, coal and iron ore imports fell last month, highlighting vulnerabilities in domestic demand during the rise in external headwinds.
In May, Beijing revealed a series of financial stimulus packages, including a 500 billion yuan low-cost loan program aimed at reducing benchmark lending rates and a mitigation of the trade war on the economy.
The Chinese market has shown a repressed response to the data. The Blue Chip CSI300 index rose 0.29%, while the Benchmark Shanghai Composite Index rose 0.43%.
Deflationary pressure
Producer and consumer pricing data released by the National Statistics Office on the same day showed that DERLationary Pressures had deteriorated last month.
The producer’s price index fell 2.7% in April, then 3.3% in May from the previous year, showing the deepest contraction in 22 months.
Cooling plant activities also highlight the impact of US tariffs on the largest US manufacturing hub, attenuating faster service growth as there remains suspense to the outcomes of US-China trade talks.
Last month, retail sales growth was late last month as spending continued due to work uncertainty and stagnant new home prices.
These headwinds were evident in Chinese car sales in May, rising 13.9% year-on-year, slowing from the previous month’s 14.8% increase, data from the China Passenger Automobile Association showed.
Slow domestic demand and low prices have heavily weighed on the Chinese economy. It struggles to carry out a robust post-pandemic recovery amid a surge in property and relies on exports to support growth.
Companies also had to adapt to price declines. US coffee chain Starbucks said on Monday it would lower the price of an average ice drink in China of five yuan.
Core inflation measurements, excluding volatile food and fuel prices, registered a slightly faster 0.6% year-on-year increase from an April increase of 0.5%, but Capital Economics’ Huang said the improvements looked “vulnerable.”
She still hopes that “permanent overpower will continue to maintain deflation for both this year and next year.”
(Reporting by Yukun Zhang, Qiaoyi Li, Ellen Zhang, Ryan Woo, and Lewis Jackson, edited by Jacqueline Wong and Shri Navaratnam)
