As China and the United States continue trade negotiations in London, China's latest economic data shows a decline in both consumer spending and product prices, with import and export figures falling more sharply than expected, raising concerns about the health of the Chinese economy. Faced with an economic crisis that is difficult to resolve in the short term, officials have hastily introduced new policies to address the pressing needs of the people, but their effectiveness remains questionable.
While senior Chinese and American officials were holding a trade consultation meeting in London, UK, China released several sets of economic data during the tariff war truce, all of which performed worse than market expectations and became the focus of attention from all walks of life.
China's General Administration of Customs released its import and export figures for May on Monday (June 9th). The closely watched exports to the United States plummeted by 34.5%, the largest drop since the pandemic. Despite double-digit growth in exports to ASEAN and the EU, China's overall export value in May rose by only 4.8% year-on-year in US dollar terms, significantly below market expectations of a 6% increase. Furthermore, the export growth in May slowed from the 8.1% increase in April. Combined with a simultaneous decline in China's total import value, the 3.4% drop was worse than market expectations. Various sets of economic data within China also showed a simultaneous deterioration. The consumer price index (CPI) continued to decline year-on-year in May, marking the fourth consecutive month of deflation. The producer price index (PPI) for industrial products also fell by 3.3% year-on-year in May, the largest drop in 22 months.
China's economic collapse has accelerated as China and the US repeatedly clashed over trade.
Cheng Xiaonong, an economist living in the United States, described various economic data sets as reflecting the severity of China's economic problems. He pointed out that the relevant data has been officially beautified, and that China's exports to the US in May, which represented orders placed before the tariffs were imposed, had already seen such a significant decline. He believes that the decline in exports to the US in June will be even greater. Cheng Xiaonong also stated that although China did not abide by the Geneva Agreement, the US and China still held negotiations in London, but the two sides continue to "clash" over trade issues. For China, a major exporter, the negative impact of capital outflows is greater than the positive.
Cheng Nongxiao said: "The repeated trade clashes between China and the United States will continue. As the world's factory at the center, China's fate and role will gradually fade in this process. In other words, the withdrawal of orders and investment from foreign companies in China is a gradual process, and this process will not stop but will continue. Foreign investment may decrease every month, and the decline in orders will also be reflected in the following months. Therefore, the gradual withdrawal of China, the world's factory, from the global supply chain is inevitable."
Cheng Nongxiao said that it is worth noting that while China's exports to the United States have dropped sharply, the decline in imports has also expanded. Coupled with the simultaneous decline in the latest CPI and PPI data, it shows that China's economy will shrink further and will experience a cliff-like collapse.
Cheng Nongxiao said, "There's one indicator many people don't notice: China's imports are also declining. Imports are a leading indicator of exports, as companies need to import raw materials before they can produce, repackage, and re-export. The decline in imports reflects a drop in demand for some raw materials. For example, if energy imports decline, it suggests factories are operating under capacity and that labor requirements are lower. Therefore, the current decline in China's imports predicts a future decline in exports, further demonstrating that the Chinese economy is shrinking."
Both CPI and PPI declined, and China is struggling to escape the dilemma of consumption devaluation.
Economist Lingling said that there are still many uncertainties about whether the new round of negotiations between China and the United States in London can be truly implemented and when the agreement can be implemented, but the double decline in China's PPI and CPI is already in sight. The double decline in the indexes will lead to a further drop in consumer prices. Even if China and the United States reach a new consensus in the new round of negotiations, it will be difficult for China to get out of the vicious cycle of gradual depreciation of consumption due to the worsening internal circulation.
The commander said, "For many months in the past, only China's CPI was declining, while the PPI situation was relatively mild. Because the PPI is the industrial producer price index, a decline in the index means that companies' revenues are decreasing. If companies lose more money, more people will be unemployed, so a decline in the PPI will aggravate the decline in the CPI. Now that China is experiencing a decline in both the CPI and the PPI, the deflation problem is more serious and more dangerous than a simple decline in the CPI. It shows that the deflation is starting from the supply side, and this deflation will be deeper and potentially longer-lasting.
Regarding the new policies introduced by multiple Chinese ministries, including the complete removal of household registration restrictions on social insurance participation at the place of employment and improvements to the minimum wage adjustment mechanism, which aim to address pressing issues facing the public and restore public confidence in the future economy, the commander stated that the Chinese people's greatest concern is whether the economy can recover. The latest measures are merely posturing, and unless the Chinese government rolls out substantial fiscal subsidies to stimulate consumption and restore market confidence, it will be difficult to truly address the public's concerns and difficulties.
