In April, Chinese exports rose by 8.1%, despite Washington's introduction of massive 145% tariffs on Chinese products. The May truce could have suggested a return to calm, but figures published by the Chinese National Bureau of Statistics highlight the continuing trade disagreements.

Export growth is already slowing to 4.8% year-on-year. In response to US restrictions on semiconductors, Beijing has tightened controls on exports, particularly of rare earths. "Tighter customs inspections in May undoubtedly weighed on the figures," explains Xu Tianchen, an economist at the Economist Intelligence Unit. As a result, rare earth exports fell by nearly 50% in May, while exports of electrical machinery also slowed significantly.

Alternatives are available

Trade tensions have not disappeared. Exports to the United States fell 34.5% year-on-year, to their lowest level since 2020.

China's inability to find alternatives to US imports has undermined confidence in the country's export model. Nevertheless, exports to Southeast Asia and the European Union remained robust, with respective year-on-year growth of 14.8% and 12%. Exports to Thailand, Vietnam, and Indonesia rose sharply, and exports to Germany rose over 12%. This was also the case in Africa, where exports increased 20% over six months compared to last year.

Domestic deflation sets in

In May, imports fell by 3.4%, revealing persistent weakness in domestic demand. China entered its fourth consecutive month of deflation (-0.1%), mainly due to falling food prices. According to ING, this trend could continue.

This outlook is problematic and reflects the worst enemy of a central bank. An increase in the money supply, for example, would have adverse effects, as persistent deflation encourages households to postpone purchases. This would accelerate deflation - the opposite of the desired outcome.

The advantage of the Chinese central bank is that it still has several fiscal and monetary tools at its disposal to remedy the situation. ING believes that the Chinese central bank will be patient and forecasts a rate cut in Q4 2025.

The producer price index is still on a downward trajectory: -3.3% in May, marking the 32nd consecutive monthly decline. All sectors are affected, a sign of structurally weak industrial demand.

The CEO of Geely, one of China's leading manufacturers of combustion engine and electric vehicles, has warned of growing overcapacity in the sector: "The global automotive industry is mired in serious overcapacity issues." In this context, the group has decided to stop building new factories. This is a significant decision that could prompt other players to follow suit, as a price war rages on the Chinese market. To preserve their market share, manufacturers are offering more and more discounts.

Two giants, same malaise

Facing Washington, China was trying to play its cards right. But as a new round of negotiations approaches, both countries appear weakened. Not in crisis, but symptomatically fragile. This double malaise could pave the way for more constructive dialogue.

An end to tariff uncertainty would clarify the economic outlook. It would free the central bank from the current ambiguity surrounding the data, restore confidence among businesses and households, and support investment.

It is perhaps this prospect that explains the recent resilience of Chinese and Hong Kong indices ahead of Monday's talks between the US and China in London.