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During the COVID War, China became the world’s manufacturer, supplying everything from razor blades to laptops—and the world’s consumers bought, boosting China’s exports to record growth.
After two years of having little to spend money on other than more stuff, consumers are emerging from their lockdowns and satisfying their need for experiences—travel, dining out, massages, concerts, yoga classes, and the gamut of good times.
As a result, China’s export economy has taken a dive.
Exports grew by a modest 3.9 percent in April, year on year, their slowest since July 2020.
External shipments of yarn and fabric grew 0.9 percent in April, year on year, compared to 22 percent in April 2021.
Electronics associated with remote work and schooling slipped 5 percent in April compared to the preceding 12 months; a month earlier, the category grew at a 10-percent annual rate, Chinese premier Li Keqiang said in public comments quoted by the Financial Times.
In this year’s first quarter, furniture exports added 2 percent, compared with a mammoth 70 percent a year earlier.
China’s economy was a phenomenon two years ago but, more recently, the near-collapse of its real estate sector, a crackdown on the tech and financial industries, and two months of renewed lockdowns have slowed the country’s economy to a crawl.
We documented China’s economic woes in “IMF Cuts Outlook for China’s Economy” (1 Feb 2022), “China’s Economy Contracted in March” (5 Apr 2022), and China’s Economy is Shrinking (10 May 2022).
For 2022, Beijing set a growth target of 5.5 percent, its most modest since the early 1990s.
However, this spring’s shutdown paralyzed 46 metro areas and the spending activities of at least 325 million people. That brought the economy to a near-standstill; the country will struggle to show any growth at all this quarter, premier Li Keqiang said recently, as we noted in “China’s GDP Could Contract This Quarter, Premier Warns” (31 May 2022).
“Given the big shock the economy’s just been through, plus headwinds on the export side, it’s quite challenging just to get positive growth at all this year,” Julian Evans-Pritchard, China economist at Capital Economics, told the FT.
The country’s export economy—which grew by 18.3 percent in 2021’s first quarter—will contract in the third quarter and for some time after that, he predicted.
That would put the world’s second largest economy into a recession.
The export industry employed 80 million Chinese workers in 2020; a single percentage-point reduction in output would erase hundreds of thousands of jobs, the FT said.
TREND FORECAST: China’s troubles will persist at least through the summer, as much of the world’s consumers in advanced economies focus their discretionary spending on activities instead of merchandise.
However, inflation’s destruction of purchasing power, combined with consumers’ spending spree during the COVID War, will cut China’s export revenue significantly for the rest of this year.
It is more and more likely that inflation, higher interest rates, and shortages of goods and materials in China, the European Union, and the U.S. will lead the world’s economy into recession.