China’s Export and Inflation Data in May Reinforce Slowing Outlook for Second Half

China’s exports grew at a slower pace in May, while consumer prices fell for the fourth consecutive month, according to official data released on Monday.

The figures came just hours before U.S. and Chinese trade negotiators were set to meet in London for high-stakes talks.

Total overseas shipments rose 4.8% in dollar terms compared to the same month last year, according to statistics from the Chinese customs authority. The result was below the 5% increase forecast in a Reuters poll of economists and lower than the 8.1% growth seen in April.

The data reflect a month of ups and downs in U.S.-China trade policy. In early May, U.S. President Donald Trump announced tariffs on Chinese goods totaling 145%, while Beijing retaliated with 125% increases. But by mid-month, U.S. and Chinese officials met in Geneva and agreed to temporarily scale back the tariffs: 30% on shipments from China to the U.S. and 10% on American goods going the other way.

Tensions persisted — including those over Chinese restrictions on rare earth minerals critical to high-tech manufacturing — but Trump and Chinese President Xi Jinping held a phone call last week, during which they agreed to schedule further negotiations.

Despite the 90-day truce reached in Geneva, China’s exports to the U.S. fell 34.5% year-over-year in May, following a 21% drop in April, while imports of U.S. goods declined 18.1%, compared to a 13.8% contraction in April. Exports to Europe and Southeast Asian countries increased by more than 10% in May.

“The trade war between China and the United States has led to a sharp decline in exports to the U.S., but the damage has been offset by stronger exports to other countries,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management. “Trade prospects remain highly uncertain at this point. Export frontloading is still underway, which should help sustain export activity in June but may taper off at some point in the second half of the year.”

Trump said Xi agreed during their phone call to allow the flow of rare earths to the U.S.
Over the weekend, China’s Ministry of Commerce said it was “reviewing export license applications for rare earths and related items” in accordance with the law, stating that it had approved “several” applications and would continue to strengthen the approval process.

In London, U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer are scheduled to meet with a Chinese delegation led by Vice Premier He Lifeng.

Although Trump has insisted that the two sides are close to a deal, several points of friction remain. In recent years, the U.S. has sought to restrict China’s access to critical technologies. Last week, Lutnick accused China of “copying” American technology during a House Appropriations Committee meeting. He called for tighter enforcement of U.S. export controls to China.

The “Global Times,” China’s state-run newspaper, published an article Sunday about the London talks with the headline “Sincerity is a Prerequisite for Any Newly Negotiated Outcomes.”

But Beijing, which is striving to meet an economic growth target of “around 5%” this year, is also likely feeling pressure.

Consumer price index (CPI) data released on Monday by the National Bureau of Statistics showed a 0.1% decline in May compared to the same month a year earlier, marking the fourth consecutive month in negative territory. The reading, matching that of April, marks the longest deflationary streak in over a year, highlighting weak consumption and the need to maintain strong exports.

The prolonged downturn in the real estate market and concerns about employment have dampened confidence, and the trade war with the U.S. is further clouding the growth outlook.

With weak demand, companies have struggled to raise prices and instead find themselves trapped in a price war, which squeezes their profit margins.

“Inflation in China remains stuck,” wrote Frederic Neumann, chief Asia economist at HSBC, in a note on Friday.

Transportation fuel prices fell 12.9% in May. Food prices declined 0.4%. Core CPI, which excludes food and energy prices, rose 0.6%.

In another sign of persistently weak domestic demand, dollar-denominated imports declined 3.4% in May compared to the same month a year earlier, following a 0.2% decrease in April. The figure was below the 0.9% decline expected in the Reuters poll.

China’s trade surplus stood at $103.2 billion, up from $96.18 billion in April.

Meanwhile, industrial data have begun to highlight the risks of failing to reach a deal with Washington.

Industrial activity shrank for the second consecutive month in May, according to an official survey, while a private-sector survey indicated the first contraction in eight months.

Although a series of interest rate cuts were announced last month, economists say authorities could pledge more fiscal spending to meet the economic growth target. Nomura Securities stated that Beijing may increase monetary policy support in the second half of the year.

Neumann wrote that intense price pressures are spreading to other countries, particularly in Asia, where Chinese goods and services make up a relatively large share of local demand.
U.S. trade restrictions could worsen the situation as China redirects shipments to other markets.

“The case for further monetary easing across much of Asia is strengthening,” he said.

Source: Valor Econômico

Sharing is caring!