China's economic performance in 2023 is lackluster, with dim prospects ahead.

Officially released customs data reveals a year-on-year decline in exports for the first time since 2016, attributed to a slowdown in global demand for Chinese manufactured goods (excluding automobiles). Officials suggest that this downturn is likely to persist in 2024.

This is not the only pessimistic data China has released. The world's second-largest economy is grappling with deflationary pressures, with consumer price inflation in 2023 at its lowest level in 14 years.

The National Bureau of Statistics indicates a slight improvement in the Consumer Price Index (CPI) from November to December, but a 0.3% decrease compared to the same month in 2022. For the entire year of 2023, prices rose by only 0.2%, the lowest since 2009 when the global economic recession led to a 0.7% decline in CPI.

China Is Facing a Dual Impact of Weakened Domestic and International Demand

In 2023, export figures, calculated in US dollars, amounted to $3.38 trillion, marking a 4.6% decline compared to the previous year's 7% growth. The last time China experienced a decrease in overseas shipments was in 2016, with a 7.7% drop in exports.

Imports also saw a 5.5% decline in 2023, totaling $2.56 trillion, contributing to a trade surplus of $823 billion for the world's second-largest economy.

"In the past year, the global economic recovery has been weak," stated Lu Daliang, a spokesperson for the General Administration of Customs, during a press conference in Beijing. "Weak external demand has hit China's exports."

He added that he expects China to continue facing "difficulties" in the export market as global demand may remain subdued, hindered by "protectionism and unilateralism."

December marked the third consecutive month of year-on-year declines in the consumer inflation index, the longest continuous decrease since 2009.

Food prices, particularly pork prices, were significant drags on inflation.

Analysts from Goldman Sachs noted, "Persistent declines in the core consumer price index may reflect continued weakness in real estate and labor market pressures suppressing domestic demand."

Factory prices were also constrained, with the Producer Price Index (PPI) falling by 2.7% in December compared to the same period in 2022, marking the 15th consecutive month of decline. In 2023, PPI dropped by 0.3%.

Looking ahead, analysts from Capital Economics anticipate a modest increase in core inflation with the help of China's cyclical economic recovery. However, deflationary pressures are expected to persist.

"Global growth weakness and China's continued overinvestment mean deflation risks will continue to overshadow the Chinese economy for some time," stated analysts from Capital Economics.

Is There a Glimmer of Hope?

However, there are some positive signals amid the data. In December, exports increased by 2.3% compared to the same month in the previous year, marking the second consecutive month of growth and indicating a slight improvement in global demand for Chinese goods. Before November, China's exports had declined for six consecutive months.

In 2023, trade with Russia reached $240 billion, setting a historical high and representing a 26% increase from the previous year, accounting for 4% of China's total trade.

The United States remained China's largest single-country trading partner in 2023, accounting for 11.2% of total trade. However, this figure declined compared to 2022, marking the first drop since 2019 when Washington and Beijing were in the midst of a prolonged trade war.

According to China Customs data, ASEAN, the Southeast Asian nations, and the European Union accounted for 15.4% and 13.2%, respectively, of China's total trade.

In 2023, China's total automobile exports increased by 69%, leading all categories. In terms of quantity, China's automotive shipments in 2023 reached 5.22 million vehicles, a 57% increase from 2022. Lu stated that this is partly attributed to the surge in electric vehicles.

"Every three cars exported by China include one electric passenger car," he said during the press conference.

"Looking ahead, we believe that China's automobile industry still has strong overall competitive advantages and can continue to provide more and better innovative products to meet the needs of global consumers," he added.

A major Chinese automotive group indicated that, driven by robust demand in Russia and the growing global demand for electric vehicles, China "definitely" surpassed Japan as the world's largest automotive exporter in the previous year.

Once official annual data from Japan is released (expected in the coming weeks), rankings will be confirmed.