China’s exports and imports (USD terms) both contracted in May. The decline in exports came in worse than expectation and contributes to a string of negative data indicating that China’s growth momentum has likely slowed in 2Q23.

Further contraction in exports of high-tech products such as semiconductors by a sharp -25.8% y/y suggests that the outlook for the electronics sector has remained weak. Shipments of consumer goods such as handbags, clothing and footwear also weakened in May.

Imports of motor vehicles, plastics, electronics and computers led the drop in May while aircraft and energy-related imports such as refined petroleum products and coal remained robust.

Taking into account the underperformance in imports to-date as a result of more prolonged weakness in both domestic and external demand, we update our forecast for China’s imports to contract by -2.0% in 2023 (previous forecast: +2.0%) while maintaining our forecast for exports to contract by -3.0% this year.