Yuan weakens in 2023 as drop in China exports signals weakening backdrop globally
ALBAWABA – The drop in China exports in July marks the biggest fall in more than three years, official data showed Tuesday, while the Yuan slips as firms leave China.
The world’s second-largest economy is struggling with sluggish global demand and a domestic slowdown, news agencies reported.
Sale of Chinese products to foreign markets sank 14.5 percent year-on-year for the third consecutive month in July, according to the customs authority.
The drop in China exports was bigger than expected and is the sharpest since dropping 17.2 percent in January-February 2020. That is when the economy came to a standstill in the early weeks of the Covid-19 pandemic.
Foreign direct investment (FDI) inflow slowed to less than $4.9 billion for the second quarter, figures published last week by China's State Administration of Foreign Exchange (SAFE) showed. Whereas Chinese companies' investments abroad sent net direct investment to a record deficit of $34.1 billion, according to Reuters.
The yuan is down about 4 percent on the dollar this year, even as the U.S. currency has fallen elsewhere, Reuters reported.
Explaining the drop in China exports, imports
Meanwhile, the threat of recession in the United States (US) and Europe, combined with high inflation, has contributed to weakening international demand for Chinese products in recent months.
The drop in China export has been ongoing since October, with only a brief rebound in March and April.
Exports dived 12.4 percent on-year in June, according to Agence France-Presse (AFP).
Shipments to the European Union (EU) in the first seven months of the year amounted to $288.9 billion, down 2.6 percent, the customs authority said in a separate statement on Tuesday.
On the other hand, China imports also shrunk more than expected, by 12.4 percent, for a ninth straight month, further confirming a decline in domestic demand.
In the meantime, the Chinese economy grew just 0.8 percent on-quarter in April-June, while youth unemployment has reached record highs of more than 20 percent, AFP reported.
The value of China's exports slipped 5 percent year-on-year in the first half of the year despite total shipping increasing an annual 10 percent in the second quarter and 8 percent in the first, according to Fitch.
The headline import figure was worse than forecast because "economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports," Xu Tianchen, senior economist at the Economist Intelligence Unit, explained to Reuters.
"For example, China is importing more oil but at lower prices, as a result, the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans," Xu added.
"China trade figures for July disappointed again," Ken Cheung Kin Tai, an analyst at Mizuho Bank, wrote in a note, carried by AFP.
"The weak trade figures highlighted the sluggish external demand, while (importers) refrained from purchasing goods for domestic production and investment," Cheung said.
"In this context, renminbi depreciation could serve as a tool to support China exports and facilitate economic recovery," he added.
