China exports in March declined by 7.5 percent year-over-year, more than offsetting the 7.1 percent gain in February or averaging an almost nil growth over these two months. The numbers in previous months were plus 2.3 percent, plus 0.5 percent, and minus 6.4 percent, which again fluctuated about zero. In fact, such a stagnant trend has lasted since late 2022, or almost 1.5 years till now. This is, by and large, in line with the world trade trend, where global trade growth peaked in early 2022 and entered a contraction zone from mid-2023 until the first quarter of this year.
It is difficult to identify the true causes of such a recent trend given the change over the period till now is short, without time series long enough to work out the statistical analysis, but we can hypothesise two reasons intuitively. First is economic, that high global inflation over the past couple of years has not only retarded demand internally (domestic consumption) but also externally. The second is political, that high geopolitical tension and regional wars destroyed some trade links, either physically or diplomatically. The latter is playing an increasing role.
Such development does not favor the “world factory” campaign because these countries are used to having a comparative advantage in supplying cheap products rather than demanding high-valued ones. A decade ago when the BRICs countries just became rich, they did have the potential to build up a closed supply-demand loop. However, the ambitions of Russia and China broke the dream. Russia’s invasion of Crimea and China’s Belt and Road in 2014 woke the West up. Their series of acts in recent years was another loud wake-up alarm.
Can China maintain its exports without Western support? The accompanying chart shows China exports in 12-month moving sum amounts, by the top eight partners. The U.S. is the largest while Hong Kong is the second, but note Hong Kong re-exports for China where most final destinations are highly similar to China’s direct export partners and so can be ignored.
Going down the list are Japan, Korea, Vietnam, India, Russia, Germany, and the Netherlands. Among these, only Vietnam and Russia are pro-China, others belong to the Western allies or strictly speaking “friends of America.” Originally, India looked more neutral, but it is the direct largest export competitor of China, and there is still a border conflict between the two. India is more like an enemy than a friend of China. As the two camps polarised, most of the major export partners of China would follow the line of Western allies. This might, in fact, be happening.
At the moment, it seems only the U.S. has been cutting down imports from China (as shown). But if others are forced to take sides, the total threat to China’s exports could be huge. In 2023, China’s total exports were US$3.4 trillion (tn), where these top eight partners already occupy nearly half. Effectively, China’s total exports are highly influenced by the U.S.. China’s hard style of trade negotiation will result in a hard crash.
