China’s huge export industry has suffered its worst month in three years, hurt by the trade war with the United States and a slowing global economy.
Chinese exports plunged 21% in February from a year earlier, according to Chinese government data released Friday. It was the weakest monthly performance since February 2016 and far worse than economists had predicted.
The tariffs imposed last year by the US government on about $250 billion of Chinese products are taking a toll. The value of goods shipped to the United States fell much more sharply than for other major markets, according to the data.
“US tariffs have become a more meaningful drag on exports,” Julian Evans-Pritchard, a China economist at research firm Capital Economics, said in a note to clients.
But the trade war, which China and the United States are trying to resolve through negotiations, is only part of the problem. The slump in Chinese exports provides “further evidence that global demand is cooling,” according to Evans-Pritchard.
If the two governments “finalize a trade deal soon, the outlook for exports remains gloomy,” he said.
February’s fall in exports followed an unexpected rebound in January, which analysts put down to companies rushing through orders ahead of the Lunar New Year holiday in early February. But even with these distortions taken into account, the performance of exports across the two months was still weak.
The tough situation is likely to continue in the coming months as demand softens in major markets such as Europe.
The International Monetary Fund expects global economic growth to decline this year. And the European Central Bank alarmed investors on Thursday by warning of “a sizeable reduction in the pace of economic expansion” that’s prompting it to keep interest rates at record lows for the foreseeable future and to announce new cheap loans for banks to try to prop up growth.
China’s benchmark stock index, the Shanghai Composite, plunged 4.4% on Friday. Chinese stocks, which have surged in recent weeks, came under pressure from the disappointing export data, broker downgrades and the gloomy ECB comments.
Chinese exports are also expected to suffer from companies moving their supply chains out of China to avoid the US tariffs.
“The ongoing trade tensions between the United States and China have already prompted some corporates to hedge against such risks,” Raymond Yeung, an economist at investment bank ANZ, wrote in a client note.
That’s despite a recent easing in trade tensions. US President Donald Trump said last week that the two sides are “very, very close” to a deal and that he plans to meet Chinese leader Xi Jinping for a “signing summit.”
But the US ambassador to China on Friday downplayed the likelihood of an imminent deal. “A date hasn’t been finalized” for a meeting between Trump and Xi, Terry Branstad told The Wall Street Journal.
“Both sides agree that there has to be significant progress, meaning a feeling that they’re very close before that happens,” he said. “We’re not there yet. But we’re closer than we’ve been for a very long time.”
Chinese economy under pressure
The grim export numbers are just the latest sign of the problems bearing down on China’s economy.
Chinese growth has come under pressure following government efforts to crack down on risky lending, a move that has starved many companies of the funds they needed to expand.
The Chinese government this week predicted economic growth of between 6% and 6.5% in 2019. That’s below last year’s 6.6% rate of expansion, which was already China’s slowest annual growth in three decades.
Beijing has in recent months ramped up its efforts to stabilize the economy. This week, the government announced cuts in taxes and other charges that it said could save businesses nearly 2 trillion yuan ($298 billion) a year.
The growing wave of stimulus measures and any trade deal with the United States should help Chinese economic growth bottom out in the second quarter of the year, said Louis Kuijs, head of Asia Economics at research firm Oxford Economics.