China concluded 2023 with further deflation and a historic drop in exports

The Chinese economy had a poor year, and the outlook for 2024 does not look any better.

Exports for the entire year fell for the first time since 2016 as global demand for goods produced in China (excluding cars) slowed, according to the latest customs data. Officials stated that the decline will be difficult to overcome in 2024, Reuters reported.

These were not the only negative data that China released on Friday. The world’s second-largest economy is struggling to halt deflationary pressures. Consumer price inflation in 2023 was the weakest in the last 14 years.

The consumer price index for December slightly improved compared to November but fell by 0.3 percent compared to the same month in 2022, the National Bureau of Statistics reported on Friday. For the entire year of 2023, prices rose by only 0.2 percent compared to 2022, marking the weakest reading since 2009, when the consumer price index fell by 0.7 percent due to the global recession.

Exports measured in U.S. dollars amounted to $3.38 trillion in 2023, a decline of 4.6 percent compared to the previous year. In 2022, Chinese exports increased by seven percent compared to the previous year. The last time China recorded a decline in overseas shipments was in 2016, when exports fell by 7.7 percent.

Imports also fell last year, by 5.5 percent to $2.56 trillion. This left the world’s second-largest economy with a trade surplus of an astonishing $823 billion.

– The global economic recovery was weak over the past year. Slow external demand hit Chinese exports – said Lyu Daliang, spokesman for the General Administration of Customs, at a recent press conference in Beijing.

He expects that China will continue to face ‘difficulties’ in export markets as global demand is likely to remain weak, and ‘protectionism and unilateralism’ will hinder growth, he added.

December was also the third consecutive month in which the measure of consumer inflation fell year-on-year, marking the longest streak of declines since 2009.

– The ongoing low core inflation likely reflects weakened domestic demand due to the ongoing property downturn and a stressed labor market – said analysts at Goldman Sachs.

Factory prices have also been reduced. The producer price index fell by 2.7 percent in December compared to the same period in 2022, marking the 15th consecutive month of decline.

Analysts at Capital Economics expect core inflation to rise slightly, supported by a cyclical recovery in the Chinese economy, but deflationary pressures are expected to persist.

– Weak global growth and continued over-investment in China mean that deflation risks will linger over its economy for some time – said analysts at Capital Economics.

Not everything is so bleak

However, there was positive news in Friday’s data. In December, exports rose by 2.3 percent compared to the same month last year, marking the second consecutive month of growth and suggesting a slight improvement in global appetite for Chinese goods. The country’s exports had fallen for six consecutive months prior to November.

With $240 billion, trade with Russia reached a new record level in 2023, which is 26 percent higher than the previous year. Overall, it accounted for four percent of total Chinese trade.

The U.S. remained China’s largest trading partner in a single country in 2023, with a share of 11.2 percent of total trade. However, this represented a decline compared to 2022, a year that recorded the first drop since 2019, when Washington and Beijing were in the midst of a prolonged trade war.

ASEAN, a ten-member bloc in Southeast Asia, and the European Union accounted for 15.4 and 13.2 percent of total trade with China, respectively, according to Chinese customs data. The country also recorded a 69 percent increase in the total value of car exports last year, the largest among all categories, CNN reported.

By volume, China delivered 5.22 million vehicles in 2023, which is 57 percent more than in 2022. This is partly due to significant growth in electric vehicles, said Lyu.

– One in every three cars exported by China is an electric passenger vehicle. Looking ahead, we believe that the Chinese automotive industry still has a strong overall competitive advantage and can continue to provide more and better innovative products to meet the needs of global consumers – he added.