China's exports and imports in March are lower than expected, with a big difference.

China's imports and exports both shrank unexpectedly in March, far below forecasts. This highlights the difficult task that policymakers face as they attempt to boost a fragile economic recovery.

The gloomy data marked a reversal for the second largest economy in the world after an overall better than expected start to the new year. China has been unable to sustain a post-COVID rebound, hampered by a prolonged property crisis, rising local government debts, and weak private sector spending.

Customs data released on Friday showed that exports from China fell 7.5% in value year-on year last month. This is the largest drop since August of last year, and compared to a 2.3% decrease predicted economists. In the period January-February, they had increased by 7.1%.

Hong Kong's main indexes suffered losses of more than 2%. The data was released just after the mainland Chinese stock exchanges had closed.

Capital Economics analysts said that despite a greater-than-expected fall in export value, export volumes reached record highs. This suggests Chinese exporters continue to cut prices to maintain sales despite a stubbornly low domestic demand.

Some economists said that a higher comparison base last year was also a factor in the drop of exports. They noted that production had increased last March, as workers recovered from COVID-19.

Both exports and imported goods rose by 1.5% in the first quarter of this year.

The Chinese exporters suffered a lot last year due to the high interest rates that weighed down on demand overseas. The Federal Reserve and other developed countries are not in a hurry to reduce borrowing costs. Manufacturers may be further strained as they try to boost sales abroad.

Kris Lin, the owner of a lighting product factory, has spent tens and thousands of yuan renting a booth for China's largest trade fair, next week. But he does not have high expectations.

Lin stated that "fewer and fewer buyers have come to our country in the last few years to inspect our products."

Analysts warn that Western concerns about China's overcapacity may lead to more trade barriers being placed on the manufacturing hub of the world.

Overcapacity Critique

Chinese automakers export 1.32 million cars in the first quarter. This is up 23.9% compared to a year ago.

Customs did not give a breakdown on how many of these were

Electric Vehicles

Exports of solar panels from China and other clean energy products are also fueling the growth.

Increased friction

With the U.S.A. and Europe

China has stated that its production system simply is more competitive. China's industrial capacity is less than that of much of the West but still lower.

Steel shipments increased by 30.7% during the first quarter, despite a decline in overall exports.

Next Tuesday, the first quarter GDP will be released.

Tianchen Zhu, economist at Economist Intelligence Unit, says that the impact of the fall in exports is not likely to be significant, as real GDP growth is closely related to export volume rather than value.

"However, data suggests falling export prices which will be a drag to nominal GDP," added he.

China's

Economy is possible

The growth rate was 4.6%

A poll released on Thursday showed that the economy grew at the slowest pace in a full year in the first three months of the year. This is keeping pressure on policymakers for them to announce more stimulus measures.

Wang Lingjun, vice-head of the customs administration, responded to a question about overcapacity during a Friday press conference. "We do not think that falling producer prices indicate the so-called excess capacity, since the price drops are due to fluctuations in raw material prices, technological upgrades, and the voluntary surrender of profit by producers."

MIXED SIGNALS

Imports also disappointed in March, with a decline of 1.9% on an annual basis, after a 3.5% increase in the previous two months. This was below the expected rise of 1.4%.

The low figure underscored the sluggish demand at home, as was highlighted by data released on Thursday, showing that consumer inflation dropped more than expected in January, but factory-gate deflation continued.

China's economy has had a solid start to the year, after policymakers implemented support measures to boost household consumption, investment in private companies and market confidence.

Analysts do not expect to see a full-blown recovery in Asia anytime soon, primarily due to the protracted crisis that has gripped the property sector, and which could last for years, according to some analysts.

Analysts note that it will take some time to change the direction of China's traditional growth engines, property and trade.

The rating agency Fitch lowered its outlook for China's sovereign debt rating on Wednesday. It cited risks to the public finances due to a slowdown in growth and an increase in government debt.

Analysts have called China's 5% growth goal for the full year ambitious, noting that COVID 2022 was responsible for last year's 5,2% expansion.

China will issue ultra-long-term treasury bond specials worth 1 trillion yuan (138.18 billion dollars) to fund key areas. The quota of special bonds issued by local governments in 2024 was also increased.

Last month, in a second attempt to boost demand, the cabinet approved a plan that aims to promote large-scale equipment upgrade and sales of consumer products. The country's chief economist estimated that the plan would generate a market demand of more than 5 trillion yuan per year.

(source: Reuters)