Chinese Exports Plunge 25 Percent From Last Year: What Is Going On?

China’s exports have reportedly plunged by 25.4 percent during the month of February compared to a year ago, and Chinese imports fell 13.8 percent compared to a year ago. This is the sharpest drop in over seven years and the third-largest drop in history.

The report adds to concerns about the health of global trade and the world’s second-largest economy. In addition to exports falling to $126.1 billion, with the situation worsening from January’s 11.2 percent drop, Chinese imports have now fallen for 16 months in a row.

Dropping import and export figures reverse optimism over the recent rise in oil and industrial metal prices and have revived worries about China’s recent slowing of its long-running yearly economic growth. The Wall Street Journal reported that China recorded its slowest economic growth in 25 years, with only a 6.9 percent increase in 2015.

SeekingAlpha noted that this marks the worst trade data since the height of the financial crisis in 2009 and theorized this sudden drop is a sign of a worse crisis yet to come, called the drop a “violent implosion,” and had dire predictions for the world economy.

“The last time we saw numbers like this, we were in the depths of the worst economic downturn since the Great Depression of the 1930s. China accounts for more global trade than any other nation (including the United States), and so this is a major red flag. Anyone that is saying that the global economy is in ‘good shape’ is clearly not paying attention.”

It also doesn’t help that, according to an exclusive story by Reuters, China is aiming to institute massive layoffs. Five to six million Chinese workers are set to lose their jobs in the next two to three years due to reforms meant to shift towards more services and domestic spending. China’s National People’s Congress, the legislature of the People’s Republic, has also predicted a coming “battle for growth,” according to BBC News.

David Lipton, the deputy managing director of the IMF, was quoted by the Guardian as saying global trade is being dragged down by weak imports and exports in China, Russia, and Brazil — three of the world’s biggest emerging market economies that are “under economic stress.”

What is the cause of this sudden economic turmoil? One factor is that Chinese businesses have shut down for the Lunar New Year holiday and global demand has weakened. Chinese trade is slowing significantly, just like the trade in the rest of the world. The figures, while still very poor, have been exaggerated by the longer-than-usual holiday this year. The dramatic drop in prices for key commodities is also a factor. There has been a slowing of Chinese foreign trade as both domestic and foreign demand decrease.

The United States is China’s largest trading partner, and American demand for Chinese products fell 15 percent in February, as reported by CBC News.

“The trade surplus with the United States, China’s biggest trading partner last month, narrowed by one-quarter from a year earlier to $14.5 billion as American purchases of Chinese goods fell 15 per cent. The surplus with the 27-nation European Union contracted by one-third to $10 billion.”

Due to the weakness of the yuan, there is a strong suspicion among analysts that businesses are over-invoicing trade imports to hide capital flight. For example, inflating the value of imports from Hong Kong to China to conceal moving capital out of the country is a common method that has come back in favor, according to the Financial Times.

To put this in perspective, according to Chinese customs data, imports from Hong Kong to China rose 64 percent in December, but Hong Kong customs only reported a 0.9 percent increase. This is suspicious to say the very least. Chinese authorities have started a campaign in recent months to crack down on such practices.

[Photo by China Photos/Getty Images]