Export Tumble in May
It was a record month for China's exports in April, bouncing to 8.5%, beating expectations. Customs reports show that exports dropped by 7.5% in May, indicating the export boom could not continue. The same period also saw negative import growth of 4.5%.
The market analysts try to find various rationales for the situation:
a. March export growth was due to pending shipment backlog after Chinese New Year factories closed down in Jan-Feb
b. During April 2022, major cities, including Shanghai, were heavily locked down, which affected exports and resulted in the shipment being rolled over to May 2022. The high rate for April was caused by the "low same period base figures" due to the locking down.
c. According to the export figures, there was a big slump in Chinese Yuan (RMB) against USD in May 2023; if exports were calculated in RMB, then the drop would be 0.8% rather than -7.5%.
Cheng, Evelyn. “China’s Exports Plunge by 7.5% in May, Far More than expected Evelyn.” CNBC, 9 June 2023, www.cnbc.com/2023/06/07/chinas-exports-plunge-by-7point5percent-in-may-far-more-than-expected.html.
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While the above explanations might contribute to a slowdown in Chinese locomotive exports, there should be other factors affecting the export environment as well.
“China Plus One/N” Started to Gel
China exported 537 billion USD worth of goods to the US in 2022, which is very close to the peak Sino-US exports of 538 billion USD in 2018 before the US-China Trade War broke out. From a different perspective, however, it appears that China's share of US importing portfolio declined from 15.6% in 2018 to 13.0% in 2022. In other words, supply chains were moving away from China. Vietnam, Thailand, Malaysia, Indonesia, and India were always under the spotlight whenever discussions were taking place about "China Plus One" or "China Plus N" for reducing reliance on supply chains in China. Canada and Mexico were also mentioned recently as alternative supply sources.
In the US, imports of goods from China shifted during the same period: general consumer products like clothing and footwear supplies were shifting to third countries; exports in 2022 tend to focus on products directly or indirectly benefiting from social distancing due to Covid-19 locking down, namely computer equipment for working or going to school from home as well as video games and toys for entertaining families at home instead of going on vacations. Consumer behavior has changed not only in the US but also in other countries. However, the above export mix might change significantly post-COVID-19.
New Opportunities in Other Markets lead to Sustainability Concerns
Combined, US, EU, and Japan, China exported 13,165 billion USD (36.7 percent of total exports) in 2022. In spite of this, all of these countries are slowing down their imports from China for various reasons, including but not limited to economic and political ones. There is a similar trend among other developed countries to buy less from China. In order to maintain manufacturing activities, China needs to explore new markets and opportunities. ASEAN was considered the flywheel of China's export growth because of its population, potential market, and industrial infrastructure. Due to a growth in imports and exports, ASEAN overtook the EU as China's largest regional trading partner. However, as 2023 progressed, the dynamic slowed down. Several analysts believe that Chinese enterprises shifting production from China to ASEAN to avoid sanctions or to benefit from tariff benefits may have contributed to the high figures last year. Shipments decrease when these enterprises receive fewer orders. Russia is another rising star with China’s export plot: 19 billion USD products were exported to Russia for Jan-Apr 2023 (67% growth). In spite of recent trade restrictions implemented to Russia, China benefits from their close relationship.
As part of the Belt and Road Initiatives (One Belt One Road) as well as the Shanghai Cooperation Organization (SCO), China is actively enhancing its ties with countries in such initiatives or organization.
For the purpose of enhancing trade relations, China signed bilateral agreements with more than forty countries to use RMB as a means of settlement and SWAP as a means of inflow and outflow trade, instead of USD. Among these countries, Russia, Saudi Arabia, Brazil, Argentina, Bangladesh, Pakistan, Iraq and Thailand are leading in using RMB when trading with China. Russia,
Crawling Forward in a Haze
China's export environment is full of challenges and uncertainty. For maintaining their economic activities, China's policymakers seek new ways to explore exporting opportunities. In spite of this, nobody could tell if the lowest point has been reached or not due to potential threats such as geographic risks and global recession risks. In order to achieve the targeted export growth, policymakers and stakeholders need workable and effective tactics.
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