The China economy’s rebound in May encountered a deceleration, even though there was a remarkable surge in exports to Russia, soaring by an astonishing 114%.

China

Retail spending is experiencing a slower recovery than initially anticipated due to cautious consumers who are concerned about the economic outlook and potential job losses. The decline in China’s exports by 7.5% compared to the previous year in May, along with a 4.5% decrease in imports, further underscores the slowdown in economic rebound following the easing of anti-virus measures. This decline in global demand can be attributed to the impact of higher interest rates. Custom data reveals that exports contracted to $283.5 billion, reversing the unexpected 8.5% growth witnessed in April. Similarly, imports declined to $217.7 billion, showing a moderation from the 7.9% contraction in the previous month. China’s global trade surplus narrowed by 16.1% to $65.8 billion, adding to the downward pressure on the world’s second-largest economy, which has already been affected by lackluster factory and consumer activities, as well as a surge in youth unemployment.

Experts, such as Lloyd Chan from Oxford Economics, predict that China’s exports will remain subdued, particularly as they anticipate a potential recession in the U.S. economy. Although factory output and consumer spending had initially revived after the lifting of stringent control measures in December, forecasters believe that the peak of this rebound has likely passed.

The sluggish recovery is not limited to retail spending alone. Jittery consumers, worried about the economic outlook and the possibility of job losses, are contributing to the slow pace of recovery. A government survey conducted in April revealed a record 1 in 5 young urban workers were unemployed. Factory activity is contracting, and employers are cutting jobs in response to interest rate hikes aimed at curbing inflation in the United States and Europe, which in turn has dampened demand for Chinese exports. Exports to the United States have fallen by 18.2% from the previous year to $42.5 billion, following the Federal Reserve’s decision to raise its benchmark lending rate to address surging inflation by slowing down business and consumer activities.

Imports of American goods have also declined, sinking by 9.9% to $14.3 billion. Consequently, China’s politically sensitive trade surplus with the United States narrowed by 21.9% to $28.1 billion.

While China’s economic growth accelerated to 4.5% in the first quarter of 2023 compared to the same period last year, it would need to further accelerate to achieve the official growth target of “around 5%” set by the ruling Communist Party for the entire year. The “disappointing activity data” observed in April suggests that China’s domestic demand recovery has lost momentum following the initial boost from reopening measures, according to Lloyd Chan.

In terms of trade partners, Russia plays a critical role in shaping China’s economy. Imports from Russia, primarily consisting of oil and gas, have increased by 10% compared to the previous year, reaching $11.3 billion. Furthermore, exports to Russia have surged by a remarkable 114% to $9.3 billion. China’s increased purchases of Russian energy, taking advantage of price cuts, have helped support the Kremlin’s cash flow after the United States, Europe, and Japan significantly reduced their purchases as a response to President Vladimir Putin’s invasion of Ukraine. China’s ability to purchase Russian oil and gas without triggering Western sanctions has solidified its position as Russia’s largest export market and an important source of manufactured goods. Additionally, China’s imports from the European Union in May witnessed a substantial decline of 38.6% to $24.5 billion, while exports to Europe also fell by 26.6% to $44.6 billion. As a result, Beijing’s trade surplus with Europe narrowed by 3% to $20.1 billion.

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