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This year started on a rather gloomy note for China with the nation posting its first ever annual export decline since 2016. According to Wind Information, Chinese exports fell 4.6% for the full year ended 2023 to $5.94 tn amid muted trade with global partners. The last time China faced this scenario was in 2016 when the annual exports declined 7.7%. For 2023, the imports dropped 5.5%, posting the first drop since the pandemic in 2020.
Wang Lingjun, Vice Minister of the General Administration of Customs took note of the situation. “The complexity, severity and uncertainty of the external environment are on the rise, and we need to overcome the difficulties and make more efforts to further promote the growth of foreign trade,” he explained in a press meeting.
China continues to grapple with property sector woes, mounting concerns over deflation, and a weak economy.
Today’s China’s inflation data also highlighted the nation’s longest run of declines in consumer prices since 2009. For December, the consumer price index slipped 0.3% from a year earlier. The sustained deflation has also led to a decline in the value of the Chinese exported goods worldwide.
China loses ground to Mexico as top US exporter
Amid changing supply chain dynamics and escalating trade tensions between the US and China, Mexico has emerged as a tough contender for the People’s Republic.
“The dynamic changed in 2018 when the US imposed tariffs on China’s goods and with subsequent pandemic-era supply-chain disruptions that altered international trade and investment flows worldwide,” says the Federal Bank of Dallas.
While the US remained the largest trading partner for China, bilateral trade declined for the first time since 2019. The latest figures by the U.S. Commerce Department revealed that imports from China dropped to 13.9% between January and November 2023, while Mexico’s share in imports rose to 15%. This is largely an outcome of President Biden’s push for “friend-shoring”, which means keeping allies and neighbouring countries as supply chain partners.
“While a slew of new trade agreements, such as increased partnerships relating to the supply of critical minerals and other essential goods, present multilateral benefits, nearshoring has especially been a boon to Mexico,” elaborated Franklin Templeton.
Highlighting China’s woes, Natasha Ebtehadj, fund manager at Artemis Investment Management, says China is the most obvious potential loser of the supply chain shifts. “It has struggled to recover from Covid and the shifting sands of world manufacturing cannot have helped it. International companies have kept operations there, ‘making in China, for China’, but are no longer as willing to invest for future growth as an export hub.”
Russian trade, auto and rare earth exports rose significantly
At the same time, China’s trade with Russia reached a record high of $240 bn in 2023 as its self-proclaimed neutral stance on the Ukraine invasion led to stronger economic ties with the nation.
Moreover, the China Association of Automobile Manufacturers reported that the country’s auto exports surged 63.7% over the year in 2023. The surge in auto exports is a result of the nation’s aggressive pursuit of overseas electric vehicle (EV) sales underpinned by government subsidies. Southeast Asia, Europe, and Australia remain the top destinations for China’s EV exports.
Additionally, China’s rare earths export in 2023 climbed 7.3% over the year, led by competitive pricing and rising demand for EVs and high-tech sectors.
December exports stronger than expected
Notably, China’s external trade numbers for December 2023 were positive. As per customs data, exports climbed 2.3% year-over-year in December 2023 to $303.6 bn, against the expected 2.1% increase. China’s trade surplus also expanded to $75.3 bn in December from $68.3 bn in November. Analysts suggest that semiconductors and electronics mainly drove the exports.
Nevertheless, economists caution against being too optimistic because the base effect and the overall economic gloom cannot be ignored. The World Bank has predicted that the global economy is set to witness its worst half-decade of growth in 30 years amid ‘feeble global trade and investment’.
Official Monetary and Financial Institutions Forum (OMFIF) cautions that the decline in Chinese exports could impact its GDP growth target.
“Slack foreign demand has caused exports to decline for most of the past year. This has meant that a specific growth target for 2024, widely expected to be at least 5%, has not been fixed. This figure is the absolute minimum needed to preserve social stability and stop the escalation of youth unemployment,” opines the think tank.
