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World

China’s Exports Drop Sharply as Global Economy Slows

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SINGAPORE—China’s exports to the rest of the world shrank unexpectedly in October, a sign that global trade is in sharp retreat as consumers and businesses cut back spending in response to central banks’ aggressive moves to tame inflation.

The slide in exports from the world’s factory floor adds to the gloom surrounding the global economy as leaders from the Group of 20 advanced and developing countries prepare to gather in Indonesia next week.

A buoyant U.S. labor market is showing signs of cooling as the Federal Reserve jacks up interest rates to tame high inflation. Many economists expect a recession in the U.S. within the next 12 months.

Europe is bracing for a difficult winter after Russia decided to throttle energy supplies in response to sanctions over the war in Ukraine. The European Central Bank raised interest rates by three-quarters of a percentage point for the second time in a row last month, but signaled mounting concerns about economic growth, prompting speculation among investors that it may soon dial back the pace of rate increases.

For China, the world’s second-largest economy, the sharp pullback in demand for its goods abroad removes a key prop for growth at a time when its economy is pressured by the government’s zero-tolerance approach to Covid-19 and a severe real-estate slump.

“It’s almost like it doesn’t have a leg to stand on,” said Steve Cochrane, chief economist for Asia Pacific at Moody’s Analytics in Singapore.

Chinese health officials said Saturday that China would stick to its tough Covid-prevention strategy, dashing hopes that had built up in recent days for an easing of strict pandemic measures following a closely watched Communist Party congress last month.

With growth slowing in the U.S., Europe and China, economists are downbeat about the global economy’s prospects this year and next. The International Monetary Fund warned last month that “the worst is yet to come,” saying it expects global gross domestic product to expand 3.2% this year, before slowing to 2.7% in 2023.

The China export slowdown “is a worrying sign for global growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics in London.

Exports from China declined 0.3% last month compared with a year earlier, China’s General Administration of Customs said Monday, the weakest pace of growth since May 2020, when trade was hobbled by countries’ early efforts to contain a worsening global pandemic. That was well below the expectations of economists polled by The Wall Street Journal, who had expected exports to increase 4% year over year.

Monday’s data showed exports to the U.S. fell 13% on the year in October, the third month of decline, while sales to the European Union fell 9%.

The data showed big falls in exports of products including home appliances and medical supplies, and weakening growth in exports of mobile phones and automobiles.

Other bellwether exporters in Asia, such as South Korea and Taiwan, have also reported faltering overseas sales, pointing to a broad slowdown in trade as the global economy loses momentum.

South Korea’s trade ministry said Nov. 1 that exports fell 5.7% in October compared with a year earlier, led by sinking exports of memory chips, petrochemicals and computers.

The cost of shipping containers full of goods around the world has fallen in recent months, as consumers retrench following a splurge on gadgets and home improvements while stuck at home during the depths of the pandemic. Prices for moving goods from Asia to the U.S. West Coast last week were 87% lower than the same time last year, according to data from online freight marketplace Freightos. Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally peak season.

The data showed weakening growth in Chinese exports of mobile phones and automobiles.



Photo:

Cfoto/Zuma Press

The decline in Chinese exports in October followed several months of slowing growth. Exports in September rose at an annual 5.7% rate, down from the double-digit pace Chinese exports posted around the middle of the year.

China’s imports from the rest of the world dropped 0.7% in October from a year earlier, underscoring weak domestic spending in China’s economy.

That was also weaker than the flat import performance expected by economists, which meant China’s trade surplus widened in October to $85.15 billion, from $84.7 billion in September.

Zichun Huang, an economist at Capital Economics, said in a note to clients Monday that he expects Chinese exports to fall further in the months ahead as the global economy slides closer to recession.

Weakening exports aren’t the only headwind facing the world’s second-largest economy.

Lockdowns have hurt economic activity throughout the year, and the threat of further measures to snuff out even the tiniest Covid-19 outbreaks means consumers are reluctant to spend and businesses hesitant to invest, compounding the drag from a deflating property bubble.

Economists say China is poised to fall well short of officials’ earlier goal of expanding 5.5% this year, and will likely record its worst 12 months for growth—aside from the first year of the pandemic—in decades.

Xiao Xiao in Beijing contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

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World

Chinese Firms Are Selling Russia Goods Its Military Needs to Keep Fighting in Ukraine

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BEIJING—Chinese exports to Russia of microchips and other electronic components and raw materials, some with military applications, have increased since Moscow’s invasion of Ukraine, complicating efforts by the U.S. and Western allies to isolate the country’s economy and cripple its military.

Chip shipments from China to Russia more than doubled to about $50 million in the first five months of 2022, compared with a year earlier, Chinese customs data show, while exports of other components such as printed circuits had double-digit percentage growth. Export volumes of aluminum oxide, which is used to make the metal aluminum, an important material in weapons production and aerospace, are 400 times higher than last year.

The rise in reported export values may partly be explained by inflation. But the data shows that many Chinese tech sellers have continued to do business with Russia despite U.S. scrutiny.

The Chinese exports, while just a sliver of the country’s overall exports, are a source of concern for U.S. officials. The Commerce Department added five Chinese electronics companies to a trade blacklist last month for allegedly helping Russia’s defense industry, both before the invasion and after it began.

“Our government and our national leadership has been very clear from February 24th on that China should not provide material, economic and military support for Russia in this war,”

Nicholas Burns,

the U.S. ambassador to China, said last week.

The Commerce Department said in a written response that while it didn’t believe China had sought to systematically evade U.S. export controls on Russia, it was closely monitoring trade between the countries and “will not hesitate to employ our full legal and regulatory tools against parties that provide support to the Russian military.”

The China-Russia trade in chips and other components with potential military applications involves both small, private outfits and sprawling state-owned enterprises. Incomplete data and complex networks of subsidiaries and middlemen make it hard to trace all the activity.

Chinese officials have said the country isn’t selling weapons to Russia. And overall exports from China to Russia have fallen substantially this year as many Chinese companies fear running afoul of the U.S.

With fireworks and fanfare, China and Russia opened a new bridge for freight traffic that links the two countries. As Russia’s isolation grows following its invasion of Ukraine, China is willing to keep their partnership going but not at any cost. Photo: Amur Region Government/Zuma Press

China’s support, broadly speaking, is critical to Moscow. Oil and gas revenues make up a sizable chunk of Russia’s economy. As European nations such as Germany seek to draw down Russian energy purchases, Russian President

Vladimir Putin

has stressed the importance of selling far more energy to China and others in Asia in the future.

China is also gaining leverage in its relationship with Russia. While China historically has relied on Russia, and before that the Soviet Union, for many advanced technologies, that is gradually changing as China closes the technology gap and emerges as a defense exporter in its own right.

Chinese leader

Xi Jinping

has repeatedly reaffirmed Beijing’s support for Russia, saying the two countries share a friendship with “no limits.” 

A shared dissatisfaction with the U.S.-led post-World War II international system has gradually driven the countries together during Mr. Xi’s decade in power, despite a long history of strategic mistrust.

A trade fair for semiconductor technology in Shanghai. The China-Russia trade in chips and other components with potential military applications involves both small, private outfits and sprawling state-owned enterprises.



Photo:

aly song/Reuters

Researchers at C4ADS, a Washington-based nonprofit organization that tracks security threats, have been looking at trade between Russian defense firms and China Poly Group, a conglomerate controlled by China’s central government.

Poly’s subsidiaries include a key Chinese weapons producer and exporter of small arms, missile technology and, more recently, antidrone laser technology.

Between 2014 and January 2022, C4ADS researcher Naomi Garcia identified 281 previously undisclosed shipments of so-called dual-use goods, which have both civilian and military uses, from Poly subsidiaries to Russian defense organizations, she writes in a report to be released Friday.

In one of the most recent shipments, in late January, according to the research, Poly Technologies sent antenna parts to sanctioned Russian defense company Almaz-Antey. Ms. Garcia said she hasn’t discovered Poly shipments to Russian defense firms since the Ukraine invasion began in late February.

Russian customs records reviewed by C4ADS say the antenna parts were specifically to be used in a radar that is part of Russia’s advanced S-400 surface-to-air missile system. Russian media, citing the country’s Defense Ministry, has said the S-400 system has been used in the Ukraine war.

“Poly Technologies is undeniably facilitating the Russian government’s acquisition of missile-system parts,” Ms. Garcia said.

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Poly Technologies was sanctioned by the State Department in January for engaging in proliferation of missile technologies. A State Department spokesperson said the sanctions were related to the company’s transferring of ballistic-missile technology to another country, but didn’t name which country.

Poly didn’t reply to a faxed request for comment and an official in its press office hung up when asked about its work with Russia. Almaz-Antey, Russia’s Ministry of Economic Development and Ministry of Industry and Trade didn’t respond for comment.

Beyond radar components and semiconductors, Chinese exporters also have helped fill a gap in basic materials that Russia is restricted from sourcing elsewhere.

In March, Australia prohibited the export of aluminum oxide and several other related products, citing their use in weapons development. Since then, Chinese exports of aluminum oxide to Russia have surged, hitting 153,000 metric tons in May, according to Chinese customs records, compared with 227 metric tons in the same month the year before.

Unlike state-owned conglomerate Poly, the Chinese companies that were targeted most recently by the Commerce Department are small, private hardware distributors run out of Hong Kong and China’s southern province of Guangdong. While there is relatively little information about the size of business they do with Russia, some of the companies named by the U.S. openly advertised their defense work.

One of the firms, Winninc Electronics Co., previously said on its website that it was a top distributor “for industrial, military, aerospace, and consumer electronics manufacturers worldwide.” That language has since been removed. “Hope we can get through this,” the website now says.

Another of the targeted companies, Sinno Electronics Co., also until recently said on its website that it was a “cooperative partner” of publicly traded U.S. hardware manufacturers including

Texas Instruments Inc.

and

Analog Devices Inc.

Texas Instruments didn’t respond to requests for comment. Analog Devices said it isn’t a partner of Sinno. It added that it had instructed its distributors to cease business with the company after the Commerce Department’s decision to blacklist it.

Sinno didn’t respond to a request for comment. A person who answered the phone at Winninc said the company wasn’t informed about the U.S. decision before it was made public but declined to comment further.

Maria Shagina, an expert on Russia sanctions at the International Institute for Strategic Studies in Berlin, said the latest action against the Chinese companies appeared to be intended to show that U.S. threats were credible, particularly considering how smaller companies may be better able to circumvent export controls than bigger ones.

“While the U.S. and its allies failed at deterrence with Russia, it’s important to prevent China early enough from systematically helping Russia,” she said.

Write to Brian Spegele at brian.spegele@wsj.com

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World

U.S. Plans Sanctions, Export Controls Against Russia if It Invades Ukraine

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WASHINGTON—The U.S. is prepared to impose sanctions and export controls on critical sectors of the Russian economy if Russian President Vladimir Putin invades Ukraine, and is working to mitigate market shocks if Russia withholds energy supplies in retaliation, officials said.

Taking a page out of the Trump administration playbook to pressure Chinese telecom giant Huawei Technologies Co., senior administration officials on Tuesday described potentially banning the export to Russia of various products that use microelectronics based on U.S. equipment, software or technology.

While the officials didn’t specify the products, they said that the goal would be to hit critical Russian industrial sectors that President Putin has given priority to, such as artificial intelligence and quantum computing.

“The export control options we’re considering alongside our allies and partners would hit Putin’s strategic ambitions to industrialize his economy quite hard, and it would impair areas that are of importance to him,” a senior administration official said.

Administration officials declined to provide many specifics on the kinds of sanctions it would impose, but said the moves would exacerbate the selloff in Russian markets, raise the country’s cost of borrowing and hurt the value of Russia’s currency.

Russia has amassed more than 100,000 troops along Ukraine’s borders, moved tanks and other military gear westward from bases in the east, and deployed troops to neighboring Belarus, which also borders Ukraine. White House officials are preparing for an incursion, and in addition to preparing sanctions, the U.S. said it would bolster NATO forces in Eastern Europe.

President Biden said at a news conference that the U.S. is ready to unleash sanctions against Russia if President Vladimir Putin makes a move against Ukraine. Biden also laid out a possible diplomatic resolution. Photo: Susan Walsh/Associated Press (Video from 1/19/22)

After weeks of calls and meetings in European capitals, U.S. and European officials said Tuesday they were seeing “convergence” on prospective sanctions among the U.S. and European nations, in part due to assurances the U.S. is working to secure energy supplies should Mr. Putin invade Ukraine. U.S. officials said they are looking for energy stockpiles in North Africa, the Middle East, Asia and inside the U.S.

“If Russia decides to weaponize its supply of natural gas or crude oil, it wouldn’t be without consequences to the Russian economy,” one of the U.S. officials said. “This is a one-dimensional economy, and that means it needs oil and gas revenue at least as much as Europe needs its energy supply.”

European officials said the Biden administration’s hands-on approach in consulting them and keeping them informed of U.S. plans, including the personal outreach by Mr. Biden and his top officials, has spurred cooperation.

Still, Russia’s ability to mitigate the impact of Western sanctions is significant—far higher than the likes of Iran, whose economy plummeted into a deep slump in 2018 after the Trump administration reimposed nuclear sanctions.

The Bank of Russia puts the country’s reserves at around $630 billion at the end of 2021 and Europe is dependent on Russia for almost 40% of its gas supplies, an export stream sanctions are unlikely to cut off. Russia’s trade and political links with China also make it less vulnerable to being isolated from the world economy.

The U.S. announcement came a day after President Biden discussed the Ukraine crisis with several European leaders. The leaders, including British Prime Minister Boris Johnson, French President Emmanuel Macron and German Chancellor Olaf Scholz, discussed their coordination of sanctions measures and the situation in Ukraine.

The leaders agreed that no major sanctions options should be taken off the table, a European Union official said, even if some would likely be used only as a last resort. Those might include measures that could cause collateral economic harm to Western countries, like cutting Russia out of the SWIFT financial network that enables banks to settle transactions across the world, and embargoes on energy imports from Russia.

“The leaders agreed that, should a further Russian incursion into Ukraine happen, allies must enact swift retributive responses including an unprecedented package of sanctions,” Mr. Johnson’s office said in a statement after the call. “They resolved to continue coordinating closely on any such response.”

The export controls under consideration, the officials said, would be implemented through a powerful U.S. policy tool known as the Foreign Direct Product Rule, which the Trump administration used to cripple China’s Huawei.

Using the rule to target a country or multiple industrial sectors as opposed to a single company is a novel strategy that could potentially have wide-ranging effects given the global dominance and ubiquity of U.S. chip-making tools and software. For example, the U.S. could use the rule to block a foreign company that made a phone in a different foreign country from selling that item to Russia if the device uses any U.S. chips.

The impact of the rule would depend on how broadly officials decide to apply the restrictions and on the precise wording in any regulation. The Trump administration made multiple attempts before settling on language for a regulation that ultimately exacted a meaningful impact on Huawei.

—Catherine Lucey contributed to this article.

Write to Gordon Lubold at Gordon.Lubold@wsj.com, Kate O’Keeffe at kathryn.okeeffe@wsj.com and Laurence Norman at laurence.norman@wsj.com

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Business

Business Groups Call on Biden to Restart Trade Talks With China

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WASHINGTON—Nearly three dozen of the nation’s most influential business groups—representing retailers, chip makers, farmers and others—are calling on the Biden administration to restart negotiations with China and cut tariffs on imports, saying they are a drag on the U.S. economy.

The tariffs on electronics, apparel and other Chinese goods, which are paid by U.S. importers, were kept in place in part to ensure that China fulfills its obligations under its 2020 Phase One trade pact with the U.S.

In a Thursday letter to U.S. Trade Representative Katherine Tai and Treasury Secretary Janet Yellen, the business groups contend that Beijing had met “important benchmarks and commitments” in the agreement, including opening markets to U.S. financial institutions and reducing some regulatory barriers to U.S. agricultural exports to China.

“A worker-centered trade agenda should account for the costs that U.S. and Chinese tariffs impose on Americans here and at home and remove tariffs that harm U.S. interests,” the letter said, referring to the administration’s policy to make worker interests a priority.

Spokesmen for the U.S. trade representative’s office and Treasury didn’t immediately respond to requests for comments.

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