The decline is contrary to the expectations of analysts, who, according to Reuters, predicted year-on-year growth of three percent. In September, exports grew by 8.3 percent.
The fact that last October Chinese exports rose at the fastest pace in more than two years also had a big influence on the year-on-year decline. At that time, businesses shipped goods to the west in large quantities in anticipation of Trump’s return to the White House.
October exports to the USA fell by a quarter year-on-year, to the European Union increased by one percent, and to the countries of Southeast Asia by roughly a tenth. Economists estimate that the loss of the American market took about 0.3 percent of China’s economic growth.
Economist Woei Chen Ho from UOB Singapore mentioned geopolitical uncertainty and other factors as the reason. For example, the fact that this year China had one extra holiday, i.e. one less working day.
“With the agreement on a trade truce, we can expect the outlook to stabilize in the short term,” she said, referring to the agreement between Trump and Chinese President Xi Jinping at the end of October. In the longer term, however, according to her, both countries will try to limit mutual dependence. The US share of Chinese trade will continue to decline.
Slowdown of the economy
According to indicators, the Chinese economy lost momentum in October. The Purchasing Managers’ Index fell to a six-month low. He indicated that the world market is saturated with Chinese goods and factory managers report a significant drop in new orders.
Tensions between Beijing and Washington unexpectedly escalated in early October after Trump threatened 100 percent tariffs on Chinese goods in response to Beijing significantly expanding export restrictions on precious metals.
The situation calmed down after the meeting of the two presidents last week in South Korea. Both sides agreed to extend the trade truce, which was supposed to expire on November 10, for another year. Even so, Chinese goods exported to the US will be subject to an average tariff rate of around 45 percent. That is, above the level of 35 percent, at which, according to economists, the profit margins of Chinese manufacturers disappear.
China is trying to diversify its export markets this year in order to mitigate the effects of American tariffs. But exporters report that they often sell to other regions with a lower margin in order to maintain market share. Insufficient domestic demand remains an obstacle to growth. Data on imports showed that they grew by just one percent, the slowest pace in five months. At the same time, the market expected three times higher growth.
