China’s narrowing trade slump boosts recovery prospects, but challenges persist. The difficulties authorities confront in constructing a long-lasting economic recovery were highlighted by a mixed bag of Chinese statistics released on Friday indicating a decreasing merchandise trade downturn and the continuation of deflationary forces. Several policy assistance measures China took in recent months have stabilized some aspects of the world’s second-largest economy. Still, geopolitical tensions, the ongoing real estate crisis, and slower global growth hinder overall activity.

After falling by 8.8% in August, outbound exports fell by 6.2% in September, exceeding the 7.6% loss predicted by experts in a Reuters survey. The statistics were supported by fresh export orders in an official factory survey conducted two weeks ago. The survey revealed improvement in the previous month, partly due to the peak export shipping season for Christmas items and favorable base effects.

According to China’s trade statistics, the newest indication is that the global electronics sector is seeing a cyclical upturn, according to Xu Tianchen, senior economist at the Economist Intelligence Unit.

“This gives reason for optimism about a rosier trade picture in 2024,” he stated.

Exports from South Korea to China, a good predictor of imports into China, decreased in September at the slowest rate in 11 months. Most of their commerce is in semiconductors, increasing Chinese manufacturers’ desire for components to re-export in finished items. The Baltic Dry Index, which measures international trade activity, significantly increased in September.

However, the General Administration of Customs spokeswoman, Lv Daliang, stated during a news briefing earlier on Friday that China’s commerce still faces a challenging foreign environment.

Amid growing tensions with the U.S. and Europe over trade, technology, and geopolitics, China’s exports to the ASEAN countries, which have emerged as the Asian giant’s greatest trading partners, fell further in September from a month earlier.

The commodities statistics revealed a contrasting picture in other places. While copper imports decreased by 5.8% yearly in September, China’s crude oil purchases increased by over 14%. Overall, merchandise imports decreased 6.3% less than expected, reflecting a sluggish but steady improvement in local demand. They came in better than a 7.3% contraction in August but missed the poll’s prediction of a 6.0% fall.

Consequently, there was a $77.71 billion overall trade surplus in September as opposed to the $70 billion surplus predicted by the survey and the $68.36 billion surplus in August.

The blue-chip CSI300 Index (.CSI300) was down 1.1% by lunchtime as global markets worried about stronger-than-expected U.S. inflation statistics and fears the Federal Reserve may hold interest rates higher for longer. Stocks in China were mostly mirroring declines elsewhere.

DIRECTIONS FOR RECOVERY

Analysts believe it’s too soon to predict how domestic demand will perform in the upcoming months since the crisis-hit real estate market might threaten a robust economic recovery, uncertainty around job and family income growth, and low confidence among certain private businesses.

After a brief post-COVID rebound, the $18 trillion economy began to slow down in the second quarter, leading officials to implement several steps to support the recovery in the face of a sluggish property market, high young unemployment, and increasing local debt repayment pressure. According to inflation statistics issued earlier on Friday, deflationary forces still exist in the economy as China’s consumer prices stalled and factory-gate prices decreased somewhat quicker than anticipated last month compared with a year earlier.

However, recent data showing positive manufacturing activity, retail sales, and a 4.1% increase in travel during the recent Golden Week vacation might provide officials some solace.

As Beijing prepares to introduce a new round of stimulus, Bloomberg News reported on Tuesday that China is considering issuing at least 1 trillion yuan ($137 billion) more in sovereign debt to fund infrastructure projects to help the economy meet the government’s annual growth target of around 5%. TMosteconomists have emphasized in recent months that to support the economic recovery; authorities would need to take more drastic action than just proposing piecemeal measures.

In a note, Robert Carnell, regional head of research for Asia-Pacific at ING, stated, “Whatever does emerge from Beijing over the coming months, it likely won’t be quick enough to make any meaningful difference to 2023.”

“At best, it should be viewed as a pain management tool to transition to a less leveraged economy.”