China faces growing headwinds after post-Covid recovery

Fri 10 Jun 2022
Posted by: Phillip Adnett
Trade News

China Trade Shipping

After a post-lockdown rebound, which saw China’s exports grow by 16.9% in May, experts are warning of troubling times ahead for the world’s largest exporting nation.

ABC News reports that forecasters have predicted economic growth for the rest of the year to be as low as 2% as the “growing headwinds” of high inflation and rising interest rates start to play out in reduced consumer demand. 

Even though China’s economy grew by 4.8% in Q1 of 2022, experts suggest that outbound shipments will weaken, while imports will also fall.

“World’s factory”

The fortunes of the world's second-largest economy will impact global trade. Dubbed the ‘world’s factory’, China accounted for 28.7% of total global manufacturing output in 2019 – a full 12 percentage points higher than the United States.

Manufacturing accounts for nearly 30% of the country’s total economic output and many key supply chains rely heavily on the Port of Shanghai.

Any wobbles in China will invariably impact the UK too. According to latest figures from the Department for International Trade, total trade in goods and services (exports plus imports) between the UK and China had been rising recently – hitting £93.0bn in the four quarters to the end of Q4 2021 (up 11.8%).

Currently, China is the UK’s third-largest trading partner (accounting for 7.3% of total UK trade), meaning any sudden contraction could have big implications for UK businesses.

Zero-cases approach

Not helping matters is the country's ongoing zero-cases approach to Covid.

Even though China reported just 73 new local infections on Friday, half of Shanghai’s residents, about 14m people, were this week ordered to undergo testing, according to the FT.

Shanghai was only re-opened last week – after two months of shutdown – but eight of the city’s 16 districts will now be closed this weekend, as a mass resident testing programme gets underway.


Impacted districts include Pudong, one of the worst hit regions. The impact of these lockdowns have been reflected in China’s trade figures for April, which showed growth of 3.9% compared to almost 15% in March. Meanwhile, Shanghai port volumes also shrank by 20% in April.

Growth predictions do vary though. The World Bank is predicting more moderate growth of 4.3% (down from the 5.1% it anticipated last December) – giving some cause for optimism.

World Bank senior economist Ibrahim Chowdhury argued challenges can be overcome. Speaking to journalists yesterday, he said: “This year’s budget includes a fiscal stimulus worth 2.7% of GDP. This will help stabilize economic growth." He added: "This decision to support consumption is a welcome step, although there is still a need for the government to step in and support less affluent centres.”