While the recent news cycle about China’s exports has focused on the decline in orders, there are favorable signs that can make us more optimistic about the outlook.
In January and February combined, China’s goods exports fell 6.8% year-on-year in dollar terms, but this beat expectations of a 9% contraction, and narrowed 3.1 percentage points compared to December’s decline. This indicates that to some extent, market expectations had been too pessimistic.
Exports to major economies, excluding the U.S., improved. In the first two months of this year, China’s exports to the EU dropped 12.2% year-on-year, 5.3 percentage points smaller than December’s decline. Exports to countries in the Association of Southeast Asian Nations (ASEAN) grew 9%, up 1.5 percentage points from December. ASEAN is a main engine driving overseas demand for Chinese goods.
But performance varied greatly across different industries. Automobile exports remained strong, while shipments of products such as integrated circuits, ships and textiles experienced year-on-year declines, echoing media reports that orders dropped.
Overseas demand stabilizes
China’s export growth has been slowing since the second half of last year due to shrinking demand from major trade partners and the recovery of overseas supply chains that has met some goods demand.
But the world economy is recovering. In February, the global manufacturing purchasing managers’ index (PMI) rose to 50 — a dividing line between expansion and contraction.
New export orders measured in China’s official manufacturing PMI survey also swung to growth for the first time in nearly two years in February with the reading reaching 52.4.
Supply chain relocation
Another concern of people pessimistic about the future of China’s exports is that the tumult in international politics will lead to a large-scale relocation of supply chains away from China to cheaper and more suitable markets. But supply chain shifts have been happening for a long time, and their impact on short-term fluctuations in China’s exports is limited.
The U.S. accelerated its decoupling from China when their trade war began in 2018, with the share of U.S. imports coming from China dipping to 16.5% in 2022 from around 21% four years before. The U.S. has transferred more orders to other Asian countries, whose share of American imports has climbed from 11% to 15.7% over the same period.
Vietnam has been the biggest beneficiary of Washington’s souring relations with Beijing. From 2018 to 2022, the country’s exports to the U.S. more than doubled. In comparison, China’s U.S. exports increased 22% in the period.
However, in terms of overall export growth during the period, China logged a 44.5% expansion, while Vietnam jumped by 52%.
Meanwhile, since 2018, China’s share of global exports has grown by nearly 1 percentage point. Last year, exports from the world’s second-largest economy totaled $3.6 trillion, a 7% increase from 2021 and equal to the sum of exports by the U.S. and Germany, which ranked second and third globally, respectively.
Furthermore, it will not be easy for global supply chains to shift from China soon. Some of the world’s largest corporations are heavily reliant on the country. Apple Inc. is one typical example.
But ultimately, the reconfiguration of supply chains will follow the fundamental laws of economics. In the mid- to long-term, China should actively upgrade and restructure its industrial chains to cope with such changes.
Li Zongguang is chief economist at China Renaissance Holdings Ltd.
This article has been edited for length and clarity.
Contact translator Zhang Ziyu (ziyuzhang@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)
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