China’s exports fell in March by 7.5% year-on-year, although the fall was mainly due to base effect: Chinese exports spiked in March 2023, so the comparison is distorted by the exceptionally high level of the year-earlier month. In RMB terms, China’s exports continue to follow a rising trend after the big jump between 2019 and 2023.

Weakish world demand is the likely culprit. Germany is at or close to recession, and US imports of consumer goods excluding autos fell from a peak of $815 billion a year during the second quarter of 2022 to $752 billion in the fourth quarter of 2023.

“Value of China’s exports falls sharply on sliding prices,” the Financial Times headlined its report. The notion that China is suffering from deflation due to overcapacity is a popular meme. Reuters reported: “’Despite a larger-than-expected year-on-year fall in export values, export volumes edged up to record highs,’ analysts at Capital Economics said, suggesting Chinese exporters are continuing to slash prices to maintain sales amid stubbornly weak domestic demand.”

The notion that Chinese manufacturing overcapacity is driving down prices, spreading deflation, and damaging the industries of other countries was the subject of US Treasury Secretary Janet Yellen’s lecture to China during her visit earlier this week. 

No data are available for China’s export volume in March. China’s Statistical Bureau has partial data through February, and the Netherlands Central Planning Bureau, the world’s main source for data on trade volume, has published figures for only as late as January.

Monthly data for the past 10 years from the Netherlands Central Planning Bureau show that export volume has tracked the RMB total of Chinese exports very closely. That is, there have been few significant deviations between the RMB proceeds of trade and export volume through January 2024.

In the aggregate, there has been remarkably little variation in Chinese export prices. In selected industries, including solar panels and EVs, to be sure, prices have fallen drastically, but that may reflect higher productivity and lower per unit costs. China in 2023 installed more than half of all the new industrial robots purchased worldwide.

China’s core consumer prices (excluding food and energy) rose by 3.8% in February from the year-earlier month – hardly a harbinger of deflation.

The US calculates a price index for imports from China. This has varied by a few percentage points in either direction since 2004. Most of the variation is explained by changes in the exchange rate between China’s RMB and the US dollar. As of February 2024, the price index for Chinese imports stood at 100.5 – almost exactly where it was twenty years ago.

There simply isn’t an iota of evidence to suggest that Chinese excess capacity is causing goods deflation.