Property sector’s downturn has pushed imports to their 11th month of declines in the past year
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HONG KONG—China’s exports to the rest of the world dropped for a fourth straight month in August, bringing little relief to the country from a deepening economic malaise and weighing on the global trade outlook.
China has struggled to sustain a wave of overseas demand for Chinese-made goods that carried it through much of the three years of the pandemic, particularly as Western consumers tilted their spending back toward services and away from smartphones, furniture and other goods. Higher borrowing rates in the U.S. and other developed countries also hit consumer appetite.
Meanwhile, Chinese imports continued to shrink in August, a reflection of lacklustre consumer demand even after the country loosened its longstanding Covid-related restrictions. A downturn in China’s property market has also sapped demand for raw materials used in construction.
Taken together, the sluggish trade data released Thursday by Beijing provides new evidence that the world’s second-largest economy is struggling to revive domestic demand.
That would ripple through the global economy as China’s slowdown weighs on oil prices and hurts commodity-exporting countries such as Australia, Brazil and Canada. Chinese manufacturers have been under pressure to cut prices to retain market share, potentially sending disinflationary currents around the world.
While Chinese policy makers have trimmed key interest rates and made new attempts to revive home-buying sentiment, economists have widely dismissed these efforts as too piecemeal to revive growth given the speed with which sentiment has soured.
“There’s still a steep hill to climb to get the all-clear on stabilisation for China,” said Frederic Neumann, chief Asia economist at HSBC.
China’s outbound shipments declined 8.8% in August from a year earlier, China’s General Administration of Customs said Thursday. The reading narrowed from the 14.5% year-over-year drop in exports in July, which marked the worst such result since February 2020.
Imports to China, including intermediate components, commodities and consumer products, fell 7.3% in August from a year earlier, slower than July’s 12.4% drop.
Even with the better-than-feared trade data, economists generally agree that exports’ ability to provide support for China’s sputtering recovery remains a distant prospect, particularly given that global trade is expected to contract this year.
“We expect exports to decline over the coming months before bottoming out toward the end of the year,” research firm Capital Economics told clients in a note Thursday.
Apart from the general slowdown in trade, China is facing a raft of other economic headwinds. After a brief spurt of spending in traveling and dining out upon reopening early this year, consumers tightened their purse strings, dragging consumer prices into deflationary territory in July. China is set to report August inflation data on Saturday.
Factory activity, meantime, reported a fifth straight month of contraction in August, while a years long downturn in the housing market has only deepened in recent months. Private investment remains depressed, while the youth jobless rate climbed to a series of record highs in the summer before Beijing decided to discontinue releasing the data to the public.
More broadly, the run of downbeat data during the summer months has sparked growing concerns over China’s long-term growth trajectory and prompted several investment banks to trim their growth forecasts for gross domestic product to below 5% for the year, compared with the official government target of around 5%, which was set in March.
Meeting with Southeast Asian leaders this week, Chinese Premier Li Qiang struck back against widespread pessimism about the country’s near-term economic outlook, saying the country is on track to hit its growth target for the year.
While Chinese policy makers have rolled out a batch of stimulus measures in recent weeks, including trimming interest rates for businesses and home buyers and extending tax relief to households, many economists have questioned whether the policies will be enough to turn around weak consumer sentiment.
China’s reduced appetite for imports—which have fallen for 11 of the past 12 months—reflects in large part the knock-on effects of the country’s continuing property crisis. Both property investment and new construction starts have plunged in recent months amid a loss of confidence in home prices; that in turn has curbed China’s appetite for commodities such as iron ore.
The export data, meanwhile, offers more evidence of China’s shifting trade patterns.
As ties have soured between Beijing and Washington, many U.S. companies have begun to redirect supply chains away from China and toward other Asian countries such as India, leading to a sharp decline in America’s reliance on goods from China.
Rising operational uncertainty, made most clear during China’s pandemic-era lockdowns, which disrupted domestic and global production and logistics, heightened the urgency for many multinationals.
In the first half of the year, China accounted for 13.3% of U.S. goods imports, down from a high of 21.6% in 2017 and representing the lowest level since 2003.
Meanwhile, trade with the 10-member Association of Southeast Asian Nations has grown over the past year to become China’s largest export market, ahead of the U.S. and European Union, according to a recent report by HSBC.
China’s warmer trade relations with Asian countries will help buffer the impact of softening Chinese exports to advanced economies. But economists say Beijing won’t be immune if the U.S. and other advanced economies tip into recession.
Global goods trade is expected to drop by 1.5% this year in part due to tightening global monetary and credit conditions before staging a modest recovery of 2.3% growth in 2024, according to estimates by Adam Slater, lead economist at Oxford Economics.
China’s weakening trade activities, meanwhile, is likely to ripple across Asia, slowing industrial expansion and hitting commodity prices, he added.
—Xiao Xiao in Beijing contributed to this article.
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Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.
4 min
For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.
Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.
Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.
Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.
Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.
Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.
Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”
Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.
For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.
The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.
The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.
Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.
Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.
“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.
Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.
For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.
Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.
Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.
Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.
“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”
Corrections & Amplifications
Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.
