New economic aid needed?
China’s economy is not gaining momentum
October 13, 2023, 10:28 a.m
The world’s second largest economy reports weak foreign trade data again. There are also growing concerns about a new downward spiral due to stagnating inflation rates, which could lead consumers to postpone purchases. Experts still see initial rays of hope.
Despite support measures from the government in Beijing, the hoped-for economic upswing in China has not materialized. The export engine continues to stutter and the risk of deflation has not been averted given stagnating consumer prices, as can be seen from figures on foreign trade and consumer prices in the Middle Kingdom. However, the bright spot is that the decline in foreign trade has slowed.
According to data from the customs authority, imports and exports each shrank by 6.2 percent in September. In August, exports fell by 8.8 percent and imports by 7.3 percent. The rate of contraction therefore decreased for the second month in a row. The current export figures are therefore seen as a sign of gradual stabilization in the world’s second largest economy.
“Signs are mounting that the cyclical upswing in the global electronics sector is causing world trade to bottom out, and China’s trade data is the latest sign,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. This gives cause for optimism.
Price data becomes an alarm signal
However, China’s trade still faces a “complex and difficult” external environment, according to the Customs Administration. Exports to the Asean countries, which include Indonesia and Singapore, fell further in September compared to the previous month. The Association of Southeast Asian Countries (Asean) has become the People’s Republic’s largest trading partner due to increasing tensions with the USA and Europe.
China’s economy lost momentum from the second quarter after a brief upturn following the Corona crisis. The government has set a growth target of around five percent for this year, which is rather moderate by Chinese standards. In 2022, the economy grew at three percent, the slowest it had been in decades, weighed down by strict corona lockdowns and the real estate crisis. According to media reports, there could be new economic aid. Because the risk of deflation has apparently not been averted.
Such a broad price decline sets in motion a downward spiral in which consumers hold back on purchases in anticipation of ever-decreasing prices, which depresses companies’ sales, profits and investments. A bad omen is that consumer prices surprisingly stagnated in September. The fact that the danger has not yet been averted can also be seen from the producer prices: they fell by 2.5 percent in September compared to the same month last year, after there had even been a minus of 3.0 percent in August.