BEIJING – China experienced a notable decline in export momentum during March as geopolitical tensions in the Middle East overshadowed the technology sector’s artificial intelligence boom, according to customs data released Tuesday.
The world’s second-largest economy saw overseas shipments increase by only 2.5% compared to the same period last year, representing the weakest performance in five months. This figure fell dramatically short of economist predictions of 8.3% growth and marked a steep drop from the robust 21.8% expansion recorded during the first two months of 2024.
Meanwhile, China’s imports surged 27.8% annually, achieving the strongest showing since late 2021 and exceeding both the previous period’s 19.8% rise and analyst forecasts of 11.2% growth.
The March data represents the initial major test of whether artificial intelligence enthusiasm and demand for related semiconductors and computing equipment could counterbalance disruptions caused by Iran’s blockade of the Strait of Hormuz, a crucial passage handling one-fifth of global oil and natural gas transportation.
Energy imports took a significant hit, with natural gas purchases declining 10.7% year-over-year to reach the lowest point since October 2022. Crude oil imports also decreased by 2.8%, partly due to Chinese vessels being stranded in the strategic waterway.
China had started 2024 with impressive export performance that exceeded projections, driven primarily by technology product sales and raising possibilities of surpassing last year’s record $1.2 trillion trade surplus. However, the ongoing Middle Eastern conflict has introduced uncertainty about maintaining this upward trend.
Despite China’s reputation for government-subsidized manufacturing that undercuts global competitors, even Chinese producers face challenges as rising fuel and shipping costs reduce international buyers’ spending capacity.
Fred Neumann, HSBC’s chief Asia economist, suggested Chinese manufacturers might still capture market share as customers look for more affordable alternatives. He noted that China’s extensive commodity reserves accumulated over decades have helped cushion the impact of raw material price volatility on production costs.
Chinese refined petroleum product exports climbed 20.5% from the previous month, totaling 4.6 million metric tons.
Xu Tianchen, senior economist at the Economist Intelligence Unit, pointed out that seasonal factors from a delayed Lunar New Year holiday also influenced the numbers, as manufacturing facilities typically close during the celebration period.
“This explains the decline across the low-value added sectors, textiles, garments, bags, toys, furniture, as they are reliant on migrant workers,” Xu said.
The comparison was also affected by elevated figures from March 2023, when Chinese factories accelerated shipments to avoid President Donald Trump’s April 2 tariff implementation deadline.
South Korean exports to China, considered an indicator of Chinese economic demand, jumped 62.4% in March, led by a 151.4% increase in semiconductor shipments driven by higher memory chip prices and strong AI server demand.
Recent manufacturing data from China indicated that goods exports continued supporting economic growth, though Middle Eastern tensions dampened business confidence as commodity prices increased sharply, raising production costs.
China recorded a trade surplus of $51.13 billion in March, down from $214 billion during the January-February period.
President Trump is anticipated to visit China for discussions with President Xi Jinping in May, with analysts expecting potential agreements on agricultural products and aircraft components while seeing limited progress on contentious issues like Taiwan.
