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China's shrinking imports, slower exports growth darken economic outlook

China's economy grew faster than expected in the first quarter thanks to robust services consumption, but factory output has lagged and trade numbers point to a long road to regaining pre-pandemic momentum.

Reuters
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Mainland Chinese tourists look out at the skyline of buildings at Tsim Sha Tsui, in Hong Kong, China May 2. Photo: Reuters
Mainland Chinese tourists look out at the skyline of buildings at Tsim Sha Tsui, in Hong Kong, China May 2. Photo: Reuters

China's imports contracted sharply in April, while exports rose at a slower pace, reinforcing signs of feeble domestic demand despite the lifting of Covid curbs and heaping pressure on an economy already struggling in the face of cooling global growth.

China's economy grew faster than expected in the first quarter thanks to robust services consumption, but factory output has lagged and the latest trade numbers point to a long road to regaining the pre-pandemic momentum at home.

Inbound shipments to the world's second-largest economy fell 7.9% year on year, extending the 1.4% decline seen a month earlier, while exports grew 8.5%, easing from the 14.8% surge in March, customs data showed on Tuesday.

Economists in a Reuters poll had predicted no growth in imports and an 8.0% increase in exports.

Government officials have repeatedly warned of a "severe" and "complicated" external environment in the wake of mounting recession risks for many of China's key trading partners.

However, the sharp deterioration in last month's trade flows will only renew worries about the state of external demand and risks posed to the domestic economy, especially given the frail recovery from a year earlier when inbound and outbound shipments were severely disrupted by China's Covid-19 restrictions.

"Given the gloomy outlook for external demand, we think exports will decline further before bottoming out later this year," said Zichun Huang, China economist at Capital Economics in a note.

"We still think reopening rebound in domestic demand will drive a recovery in imports over the coming months," she added.

The downturn in imports suggests the world economy won't be able to count much on China's domestic engine of growth, and as the nation re-exports some of its imports, it also reinforces the extent of weakness in some of its major trading partner economies.

Analysts say the sharp global monetary policy tightening campaign of the past 12-18 months and recent Western banking stress remain concerns for revival prospects of both China and worldwide.

Shipments growth to Asean - a block of Southeast Asian countries - slowed to 4.5% in April from 35.4% last month. The region is China's largest export partner.

Other recent data also showed South Korean exports to China, a leading indicator of China's imports, were down 26.5% in April, continuing 10 consecutive months of decline.

China's coal imports fell in April from a 15-month high in the prior month, snapping back as demand weakens in Asian giant. Imports of copper - a proxy for global growth - and natural gas were also down in the same period.

"The contraction of imports may be partly driven by the slowdown of global demand, which in turn affects China's imports of parts and components for the processing of exports," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The recent official manufacturing purchasing managers' index for April showed new export orders contracting sharply, underlining the challenge facing Chinese policymakers and businesses hoping for a robust post-Covid economic recovery.

China's first quarter GDP data last month, while offering some relief, also raised doubts about the demand outlook due to property market weakness, slowing prices and surging bank savings.

The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.

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