The news: The effects of the trade war on China’s economy were evident in April—making the 90-day tariff easing a necessary reprieve for both consumers and businesses alike.
- Retail sales rose 5.1% YoY, missing analyst expectations for 5.5% growth and a considerable deceleration from the previous month’s 5.9% increase.
- Factory output also slowed to 6.1% YoY, down from 7.7% in March, although that still beat the consensus estimate for 5.5% growth.
Behind the numbers: The data indicates that despite China’s tough rhetoric and stimulus measures, consumers are not feeling any more confident about the state of its economy. At the same time, better-than-expected industrial growth shows that at least in the short term, Chinese manufacturers are finding opportunities to diversify beyond the US—which will be vital to their survival should the trade war drag on.
The diversification trend is evident when looking at both China’s export data and the actions of some of its largest ecommerce companies.
- April exports to the US sank 21% YoY in April as the prospect of 145% tariffs forced companies to put orders on hold. But exports to Association of Southeast Asian nation (ASEAN) countries more than made up for that decline, rising 20.8% YoY thanks to surging demand from countries such as Indonesia (up 37%) and Thailand (28%).
- Temu and Shein are shifting their ad budgets from the US to Europe in a bid to quickly gain market share before those countries also limit duty-free purchases. Shein spent 70% more YoY on ads in Europe in the first 12 days in May, per Sensor Tower data provided to the South China Morning Post, while Temu is also ramping up spending in markets like France.
Our take: It will take some time for the full effects of the trade war to be felt by the Chinese economy, especially as companies rush to take advantage of the 90-day reduction in tariffs. While manufacturers are finding short-term opportunities by shipping more goods to countries other than the US, that strategy may not last for long amid growing worries that cheap Chinese imports could undercut local businesses.