China's exports and imports both fell more than expected in July as a trend of supply chain migration took hold, raising concerns beyond the current wave of global recession.

Analysts said the downturn signaled a deterioration in the overall outlook, with exports expected to contract on a similar scale by the end of the year, meaning it will take some time for growth to rebound.

The broad-based decline also exposed the growing challenges facing China as it struggles to revive domestic demand and reinvigorate confidence in the business sector amid a stuttering post-epidemic recovery that threatens its annual growth target of around 5 percent.

Exports fell for the third consecutive month, dropping 14.5 percent year-on-year to $281.76 billion, the biggest drop since February 2020, according to data released by China's customs on Tuesday.

Meanwhile, imports fell 12.4 percent year-on-year to $201.16 billion, as China's total trade surplus rose to $80.6 billion in July from $70.62 billion in June.

Lacking prospects for sustainable revenue growth, millions of small-business owners are struggling to keep their businesses afloat, including a Shenzhen-based household goods exporter surnamed Luo.

"I'm now taking out my savings to run my company, with which I can still pay my employees' salaries," Luo said.

"But I'm panicking, when will it end? Will it be a bottomless pit?"

>>>Understanding the Specifics of China's Imports and Exports in 2023<<<

China is not alone, however, as all of Asia's major exporting powers have suffered trade slumps in recent months due to a general global slowdown and weak consumer demand.

South Korea's exports fell 16.5 percent year-on-year in July, marking the 10th consecutive month of declines.

Taiwan's exports also plunged 10.4% in July, the 11th consecutive monthly decline and the biggest in nearly 14 years.

Vietnam's exports also fell for the fifth consecutive month in July, following a 2.1% decline.

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While China's position as the world's largest exporter - further strengthened during the epidemic by a more resilient manufacturing sector - will remain secure in the coming years, the impact of Western "de-risking" efforts will only increase. The impact of Western "de-risking" efforts will only increase, industry insiders and economists say.

Law said her U.S. clients are facing increasing political pressure to shift their Chinese sourcing to other countries, including Mexico.

"We've also felt a change in attitude from our U.S. clients this year," she added.

"In the past it was all about business to business and maximizing profits, but this year they are seeing increasing political pressure from the U.S. government to repatriate their products to other countries or shift their supply chains to tax-supported countries such as Mexico. The U.S. used to be our most open market, but not anymore."

Economists at Nomura Securities said the worsening export contraction signaled weak production, while the rapid deterioration in imports reflected weak domestic demand in China.

They added that the latest balance of payments data showed that China's outward foreign direct investment (FDI) fell to a record low of $4.9 billion in the second quarter, a sharp decline that bodes well for exports in the coming years.

They said, "The sharp decline in FDI may have put serious pressure on the export sector, as exports from foreign companies operating in China account for about 30 percent of China's total exports."

>>>Find out Which Other Asian Countries Are Experiencing Declining Export Trends<<<

In July, China's exports to its major trading partners all contracted, with exports to ASEAN, its largest trading partner, falling 21.43 percent year-on-year, the second consecutive month of decline.

Meanwhile, exports to the European Union fell 20.62 percent year-on-year, and exports to the U.S. declined for the 12th consecutive month after falling 23.12 percent.

Mao Zhenhua, founder of China Chengxin Credit Rating Group, said last month that China should be wary of the so-called "China Plus" strategy, a U.S.-led movement that involves diversifying China-centered supply chains to other countries.

"At present, this trend is strengthening rather than weakening. As the 'positive' keeps getting bigger, it will further affect China's export share in the future," said Mao Zhenhua, who is also co-director of the Institute of Economic Research at Renmin University of China.

He added that it was "dangerous" for China to focus only on a few emerging economies, although the supporting role of ASEAN and other developing economies was growing amid weak demand from the US and EU.

"ASEAN and other countries are increasing their exports to the U.S. and EU while increasing imports from China, and behind this trend there is potentially a dramatic shift in the industrial chain, which will be detrimental to China's exports in the long run." Mao Zhenhua said.

He added that China should therefore continue to expand its economic relations with European countries amid rising tensions with the United States.

In terms of China's imports, despite a sharp drop in value, the volume of major commodities such as iron ore and oil increased year-on-year in July due to a higher price base last year, said Ding Shuang, chief representative for commodity trade.

"Although we have been saying that domestic demand is insufficient, it seems that domestic demand is still better than external demand and will likely continue to outperform external demand in the second half of the year," he said.

"In terms of (economic) growth, that will make exports a bigger drag."

If exports and imports continue to weaken in the coming months, there will be no guarantee that the modest annual growth target will be met, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management.

Gary Ng, senior economist at Natixis, said the rebound in imports and domestic demand remains weaker than expected.

"Issues in real estate, infrastructure and consumer confidence remain challenging," Ng said.

"I wouldn't be surprised to see China's imports and exports in 2023 fall on an annual basis for the first time since 2016."

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