10/06/2025

BIZ & FINANCE TUESDAY | JUNE 10, 2025

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China’s May export growth slows as US tariffs bite

Trump-induced turbulence hits HK dollar, interest rates HONG KONG: US President Donald Trump’s erratic policies are rattling a currency peg that has withstood the test of time and is seen as an anchor for China and Asia. The Hong Kong dollar has whipsawed from one end of its narrow trading band to the other versus the greenback in just a month. While the latest volatility is not seen as a threat to the four-decade-old peg, it has had a dramatic impact on interest rates, providing a challenging environment for businesses and investors in the financial hub. The stress on one of the world’s best known currency pegs underscores how volatility in the US dollar under Trump is disrupting even the most stable corners of the market. Interest rates in Hong Kong have tended to move in lockstep with the United States, keeping the Hong Kong dollar – which trades between 7.75 and 7.85 per US dollar – relatively stable. But they have decoupled over the past month as global investors cooled on US assets and fretted about Washington’s growing debt pile, while massive capital entered Hong Kong as foreigners flocked to blockbuster share offerings. China investors have also ploughed record amounts of money into Hong Kong-listed stocks. “The pace and speed of inflow was quite surprising,” said ANZ chief economist for Greater China Raymond Yeung. The volatility forced the Hong Kong Monetary Authority (HKMA), the city’s de-facto central bank, to intervene in the foreign exchange market four times in May as the Hong Kong dollar bumped up against the strong end of its trading band. That caused borrowing costs in Hong Kong to plunge to record lows, tempting speculators to short-sell the currency and drive it swiftly to 7.85, the weak end of the band. As Hong Kong rates fell, the gap between US three-month rates and the benchmark in Hong Kong hit a record high last week, based on LSEG data stretching back to 2020. Spreads across other tenors similarly widened. Analysts say it is normal to see an occasional deviation in rates between the Hong Kong dollar and US dollar, but the abrupt moves seen in recent weeks are worrisome for businesses and investors – especially given disruptions to global trade and other uncertainty. “If the gap closes abruptly, then firms and households and the financial system in Hong Kong might suffer from a large interest rate shock, which is not good for financial stability,” ANZ’s Yeung said. Hong Kong officials have sought to reassure markets that the peg is here to stay, and that despite the increased volatility, there are some benefits to the current low level of rates. The city’s leader John Lee told South China Morning Post in an interview published yesterday that the city will maintain its currency’s peg to the dollar. HKMA chief Eddie Yue noted the impact of lower interest rates on individuals and corporates would vary, depending on their relative positions in bank deposits and borrowings. “However, looking at it through a macroeconomic lens, lower interest rates should be beneficial to the current economic environment of Hong Kong.”– Reuters

low-cost loan programme for supporting elderly care and services consumption. The measures are aimed at cushioning the trade war’s blow to an economy that relied on exports in its recovery from the pandemic shocks and a protracted property market slump. China’s markets showed muted reaction to the data. The blue-chip CSI300 Index and the benchmark Shanghai Composite Index were up around 0.2%. Producer and consumer price data, released by the National Bureau of Statistics on the same day, showed that deflationary pressures worsened last month. The producer price index fell 3.3% in May from a year earlier, after a 2.7% decline in April and marked the deepest contraction in 22 months, while consumer prices extended declines, having dipped 0.1% last month from a year earlier. Cooling factory activity also highlights the impact of US tariffs on the world’s largest manufacturing hub, dampening faster services growth as suspense lingers over the outcome of US-China trade talks. Sluggish domestic demand and weak prices have weighed on China’s economy, which has struggled to mount a robust post-pandemic recovery and has relied on exports to underpin growth. Retail sales growth slowed last month as spending continued to lag amid job insecurity and stagnant new home prices. The core inflation measure, excluding volatile food and fuel prices, registered a 0.6% year-on-year rise, slightly faster than a 0.5% increase in April. However, Capital Economics Huang said the improvement in core prices looks “fragile”, adding “we still think persistent overcapacity will keep China in deflation both this year and next”. – Reuters

o Factory-gate deflation worst in almost two years

BEIJING: China’s export growth slowed to a three-month low in May as US tariffs slammed shipments, while factory-gate deflation deepened to its worst level in two almost years, heaping pressure on the world’s second-largest economy on both the domestic and external fronts. American President Donald Trump’s global trade war and the swings in Sino-US trade ties have in the past two months sent Chinese exporters, along with their business partners across the Pacific, on a roller coaster ride and hobbled world growth. Underscoring the American tariff impact on shipments, customs data showed that China’s exports to the US plunged 34.5% year-on-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the Covid 19 pandemic upended global trade. Total exports from the Asian economic giant expanded 4.8% year-on-year in value terms in May, slowing from the 8.1% jump in April and missing the 5% growth expected in a Reuters poll, customs data showed yesterday, despite a lowering of US tariffs on Chinese goods which had taken effect in early April. Imports dropped 3.4% year-on-year, deepening sharply from the 0.2% decline in April and worse than the 0.9% downturn expected in the Reuters poll. Exports had surged 12.4% year-on-year and 8.1% in March and April, respectively, as factories rushed shipments to the US and other overseas manufacturers to avoid Trump’s hefty levies on China and the rest of the world. While exporters in China found some respite in May as Beijing and Washington agreed to In a post on its Weixin social media account, the US coffee chain said it would offer more “accessible” prices on dozens of its drinks, including non-coffee drinks and frappuccino, from today. While China is Starbucks’ second-largest market after the US, the coffee market is highly competitive and consumers have become more cautious about spending because of the slowing economy and concerns about job security. The new approach means some of Starbucks’ drinks will be priced as low as 23 yuan, the post said. Domestic rivals such as Luckin Coffee and Cotti have priced their drinks as low as 9.9 or even 8.8 yuan, while deep-pocketed internet companies JD.com and Alibaba Group have entered the food delivery market, adding to the competition. With offers and vouchers, Chinese coffee consumers can buy themselves a drink for as little as 2.9 yuan. A person close to Starbucks said the company was not reducing prices in response to intense price competition, but looking to attract more customers in the afternoon. The individual requested anonymity as they were not in a role that allowed them to comment to the media. “Starbucks likely has a longer-term strategy, which is to focus on the demand for non-coffee

suspend most of their levies for 90 days, tensions between the world’s two largest economies remain high and negotiations are underway over issues ranging from China’s rare earths controls to Taiwan. Trade representatives from China and the US met in London yesterday to resume talks after a phone call between their top leaders on Thursday. “Export growth was likely stalled by heavy customs inspections in May due to tightened export control efforts,” said Xu Tianchen, senior economist at the Economist Intelligence Unit, noting that rare earth exports nearly halved last month, while electric machinery exports also slowed significantly. China’s imports from the US also lost further ground, dropping 18.1% from a 13.8% slide in April. Zichun Huang, economist at Capital Economics, expects the slowdown in exports growth to “partially reverse this month, as it reflects the drop in US orders before the trade truce”, but cautions that shipments will be knocked again by year-end due to elevated tariff levels. China’s May trade surplus came in at US$103.22 billion, up from the US$96.18 billion the previous month. Other data, also released yesterday, showed China’s import of crude oil, coal, and iron ore dropped last month, underlining the fragility of domestic demand at a time of rising external headwinds. Beijing in May rolled out a series of monetary stimulus measures, including cuts to benchmark lending rates and a 500 billion yuan

Starbucks to lower prices in China as competition heats up BEIJING: Starbucks China will lower the prices of some of its iced drinks by an average of five yuan (RM2.95) across the country, the company announced yesterday, as competition intensifies and consumers become more cautious about spending.

Baristas making drinks in Starbucks Reserve Roastery, the largest Starbucks shop in the world, in Shanghai. – REUTERSPIC

items in the afternoon among consumers,” the source said. Starbucks had said previously that it would not engage in a price war. However, it has also introduced smaller-sized

drinks and issued coupons which have lowered prices for customers The US giant has also been looking to revive its business in China via selling stakes in the business. – Reuters