Hong Kong's trading relationship with US at risk

The Chinese economy is still struggling to recover from the epidemic

Customs data released at the end of this week showed that exports in the world’s second largest economy last month fell by 3.3% in US dollars compared to last year, reflecting a 3.5% increase in April.

Analysts attributed deflation to weakening demand abroad: while China began to reopen its economy months ago, only many other global powers have started lifting some of the closures during the past few weeks.

The recovery at home was not entirely smooth for China either. Imports last month fell 16.7% in US dollars from last year – the deepest contraction since January 2016 – indicating that domestic demand remains slow.

“Import data point to a weaker domestic economic path when opening up than feared, even as China begins to increase spending on infrastructure,” Mitul Kotecha, chief emerging market analyst at TD Securities said in a research note on Monday.

China, which was suffering from a slowing economy even before the virus was infected, is trying to get its way out of the recession. The country promised last month To throw 3.6 trillion yuan ($ 500 billion) Its economy this year is in tax cuts, infrastructure projects and other stimulus measures as part of an effort to create 9 million jobs and ease the consequences of the epidemic.

There are at least some signs of recovery in demand, encouraged by more generous cash handouts. Passenger car sales increased in May for the first time in 11 months, according to data released Monday by the China Passenger Car Association. The country sold 1.6 million new passenger cars last month, up 1.8% from last year.

But trade remains a sensitive spot for China, which manages to escalate tensions with the United States. The mutual blame for the epidemic has sparked the relationship between the world’s major economic powers, which could jeopardize a fragile trade truce.

May data showed a record trade surplus of $ 62.9 billion, according to Quitch from TD Securities. President Donald Trump has often criticized China for running a huge trade surplus with the United States.

However, economists at Capital Economics expect Chinese exports to continue to weaken in the short term, before stabilizing later in the year.

And they wrote in a research note on Monday that they expect global growth to contract “at the end of this quarter,” putting ground under exports during the back half of 2020.

Economists at Capital Economics also expect that Chinese stimulus measures should “drive a solid recovery in imports.”

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