The contraction in China’s exports and imports (both USD and CNY terms) deepened in Jul. Weakening external demand further dims the prospects of China’s recovery in 2H23.  

Domestically, the property market stress, poor consumer sentiment and severe floods are also keeping economic risks to the downside as markets continue to watch for stronger policy response with the annual Beidaihe retreat of senior Chinese government officials reported to be in session. 

Taking into account of the sharper than expected contractions to-date, we revise our forecast for exports and imports decline this year to -6.0% (from 3.0%) and -7.0% (from -2.0%) respectively. For both, the monthly contractions trend may be extended to the end of 2023, though the magnitude would likely ease as the base effect turns more favourable.