HONG KONG, July 15 (Reuters Breakingviews) – China’s manufacturing exports are at an all-time high and domestic output grew just 0.4% year-on-year in the second quarter. Considering weak consumption and cooling global demand, it makes sense for the country’s manufacturers of everything from cargo ships to lava lamps to try to capture the foreign market from their neighbors. It will bite if they do.

It’s hard to believe that the economy that struggled in the three months that ended in June actually won at the same time in 2021, when life was normal. Goods, an industry that drives a third of employment, is on the brink of collapse; Angry homebuyers defaulting on mortgages en masse read more. Seniors should also worry about the looming unemployment crisis. They’ve opened the credit taps and used front-loading tools, but the cashback means it keeps things difficult to read. So the central bank kept interest rates low.

Fortunately there is an export sector. China managed to increase its share of global sales by two percentage points during the pandemic to improve its share of the global market by 15% in March. However, growth prospects have been fading as Western countries face recession. If this pillar of long-term action begins to shake, it can disrupt recovery in other sectors.

In June, China’s trade volume reached $98 billion. This is disappointing for foreign companies that were hoping to sell to the majority of the country’s consumers. It also shows how China has kept most of its resources to itself. Although there is talk of selling some products to ASEAN countries, the monthly trade deficit with China has increased to $17 billion. Japan and South Korea are seeing their margins shrink as Chinese companies challenge rivals in sectors such as shipping, robotics and automobiles.

In a world where many people are in dire need, retailers struggle with remaining customers. As Chinese companies try to expand their share of the shrinking pie, they will start brutal price wars, which Beijing can support with cheap and preferential loans. In the month of April, the government also released an amount to reduce the import tax.

Victory can be painful early on. Putting competing suppliers out of business could cause the local economy to collapse, which would reduce demand for Chinese goods and services. This will consolidate the business, but at that time the neighbors will not appreciate it.

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(The author is a Reuters Breakingviews columnist. The views expressed are his own.)

CONTEXT ISSUES

China’s gross domestic product grew 0.4% annually in the quarter to the end of June and 2.5% in the first half of the year, the National Bureau of Statistics reported on July 15. Economists polled by Reuters had expected 1.0%. Compared to the previous quarter, the output was 2.6%.

The property sector, which accounts for between a quarter and a third of GDP, showed signs of depression. New home prices fell 0.5% in June from a year ago. Property and real estate sales rose 22.2% in the first six months of 2022, new construction fell 34.4% and income fell 5.4%.

Factors contributing to growth include operating expenses, which grew 7.1% in the first half, recovering credit growth and strong exports. China’s trade volume hit a record high of $98 billion in June. Retail sales rose a surprising 3.1% in June.

(The author is a Reuters Breakingviews columnist. The views expressed are his own.)

Edited by Antony Currie and Pranav Kiran


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