China’s exports slumped in March, dealing a blow to hopes that booming sales abroad will offset weak demand at home and drive growth in the world’s second-largest economy. 

Exports shrank 7.5% in dollar terms in March from a year earlier, while imports fell 1.9%, the customs administration said Friday. Both numbers came in well below economist forecasts. The trade surplus for the month was almost $59 billion.

Bright spots in earlier March data, especially from trade and industry, had offered encouragement that China’s goal this year of around 5% economic growth is within reach. Manufacturing companies reported an expansion for the first time since September, and new export orders also picked up after contracting for months. Banks including Goldman Sachs and Morgan Stanley raised their 2024 growth forecasts this week.

“Taking the positive surprise seen earlier this year, we still view that exports should be on a recovering trend, but modestly,” said Michelle Lam, Greater China economist at Societe Generale SA. “The data may also lead to some less aggressive expectations for first-quarter GDP out next week.”

That number is due on Tuesday, along with a raft of other data from retail sales to industrial production that will offer a clearer picture of the outlook. 

Steel Surge

Expectations that China will rely on demand in other countries to meet growth targets have helped stoke trade tensions with the US, Europe and some emerging economies.  Those likely won’t fade even after the March trade slowdown, because in some contentious areas China’s foreign sales are still advancing. 

Exports of steel products rose 31% to almost 26 million tons in the first three months of the year, the most since 2016. Back then, the European Union, the US and Japan complained vocally about Chinese steel overcapacity driving down global prices — concerns that have resurfaced in the past year.

What Bloomberg’s Economists Think...

Early indicators of overseas demand point to some resilience in coming months, which is “a positive for economy but it doesn’t look strong enough to offset weakness in domestic demand. 

The surprise decline in imports is also instructive. Policymakers will have to do more heavy lifting to revive demand.”

— Eric Zhu, economist

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In manufactured goods including cars and semiconductors — two areas where Western nations are trying to fend off Chinese competition — exports recorded double-digit growth in dollar terms in the first three months of the year. Phone sales declined when measured in dollars, but the actual number of phones shipped overseas rose 6.3% — illustrating how Chinese firms are slashing prices.

Among other products, fertilizer exports led the decline with a 52% plunge in the first quarter from a year ago. That likely reflected Beijing’s effort to secure domestic supplies and stabilize prices.

Generally, March figures need to be set in context of the previous two months, and quarterly data offer a more reliable guide, said Zhiwei Zhang, president of Pinpoint Asset Management. On that basis exports rose 1.5% from a year earlier, compared with a fourth-quarter contraction, which “shows a reasonable story about external demand,” he said.

Other Asian countries have benefited from signs of improving international demand, with sales to the US and elsewhere driving a continued expansion in both Korean and Taiwanese exports in March. 

Chinese export prices fell through February, and that deflation means any rise in demand may not translate into higher profits for Chinese firms. Producer prices fell in March for an 18th straight month. 

Meanwhile the unexpected drop in imports adds to worries that Chinese consumers, still feeling the impact of an extended real estate slump, have little appetite to spend. Earlier this week, the government reported that consumer prices barely rose in the 12 months through March, highlighting that deflation remains a threat.   

--With assistance from Yujing Liu.

(Updates chart, adds comment from Bloomberg Economics)