Faced with the restructuring of the global value chain, insufficient foreign demand, and numerous uncertain factors, my country confronts significant challenges in foreign investment and trade. This year China’s government work report once again stresses the importance of expanding high-level opening up the linkage effect between domestic and international markets.
Amidst the backdrop of global economic slowdown, rising protectionism, and anti-globalization sentiments, China’s foreign trade dynamics have undergone notable structural shifts. In 2022, China’s top five trading partners included ASEAN, the European Union, the United States, Japan, and South Korea. While the share of traditional partners like Japan and the United States has declined, there has been a rapid increase in trade with countries along the Belt and Road initiative, Russia, and ASEAN nations.
The transformation in China’s trade and export structure is evident, reflected in the expanding trade surplus. Unlike a decade ago when China primarily exported light industrial products such as shoes, socks, and toys, there has been a significant upgrade in export products and added value, contributing to the growth in export volume.
China’s foreign trade exports have been restructuring notably, especially in recent years amidst the pandemic. Notably, exports to non-Western countries have been on the rise, surpassing exports to the United States, Europe, and Japan in 2023. This shift is attributed to several factors.
Firstly, China has been diversifying its export destinations to mitigate risks associated with overreliance on developed markets like the United States, Europe, and Japan. This strategic diversification began around 2010, accelerated by geopolitical tensions.
Secondly, the advancement of the One Belt, One Road initiative has significantly boosted exports to non-traditional markets, buoyed by increased foreign investments. China’s extensive infrastructure projects in Belt and Road countries have not only facilitated trade but also boosted exports of high-value electromechanical machinery and equipment.
Thirdly, Western countries increasingly perceive China as a formidable competitor, prompting trade disputes under the guise of national security concerns. Despite such challenges, China’s robust performance in overseas markets has cemented its position as the largest trading partner for numerous countries, prompting trade tensions with the West.
Observing the evolution of China’s export trade reveals a broader shift, including the relocation of production to Southeast Asia and South Asia. Consequently, China’s industrial and supply chains have also undergone significant restructuring, with raw materials and semi-finished products processed in Southeast Asian countries before reaching US and European markets.
This phenomenon has resulted in a significant shift: ASEAN countries have emerged as China’s primary trading partners, yet a considerable portion of China’s exports to ASEAN consists of intermediate products rather than final goods. These intermediates are assembled in ASEAN nations and then exported to the United States. Global trade data indicates a rising trend in China’s exports to ASEAN alongside an increase in ASEAN countries’ exports to the United States.
For instance, approximately 70% of products exported from Vietnam to the United States originate from China, leading to an apparent surge in “Made in Vietnam” trade volume, primarily driven by increased exports from China.
A similar scenario unfolds in Mexico, where many Chinese manufacturers have shifted production, leveraging Mexico’s membership in the North American Free Trade Agreement to benefit from low tariffs on exports to the US. Consequently, China’s trade surplus with Mexico and Mexico’s trade surplus with the United States have both expanded, ultimately accumulating trade deficits for the United States across various countries.
As China’s primary trading partner in ASEAN for four consecutive years, China’s exports to ASEAN predominantly include electromechanical and audio-visual equipment (constituting 37.5% of the total), base metals, textile raw materials, chemical products, and more. Both market and non-market factors influence these dynamics. Market factors primarily revolve around shifts in comparative advantages, such as lower land and labor costs in ASEAN compared to China.
Non-market factors, particularly geopolitics, also play a significant role. Pressure from the United States to relocate suppliers, impose tariffs on Chinese goods, or prohibit direct imports from China has compelled some Chinese companies to adapt. For instance, restrictions related to Xinjiang cotton over alleged human rights violations have disrupted supply chains, affecting industries like artillery manufacturing. Some Chinese firms, entrenched in US and European markets, reluctantly redirect part of their production to South and Southeast Asian countries in response to geopolitical conflicts, driven not only by economic considerations but also political pressures.
The government work report underscores the importance of promoting stable growth and optimizing the structure of foreign trade, emphasizing the export of electric vehicles, lithium batteries, and photovoltaic products. These sectors have seen significant growth, representing strategic industries with high added value and alignment with green and low-carbon trends.
Despite the success, concerns have been raised about over-investment and overcapacity in these fields, a common occurrence in emerging industries. Similar challenges were faced during the rise of the internet industry in the United States, where market competition led to consolidations and mergers among companies.
China’s electric vehicle sector is poised for similar transformations, with government subsidies and corporate investments driving initial growth. As competition intensifies and the market matures, some companies may face elimination or consolidation, ultimately leading to a balanced supply-demand equilibrium and sustainable profitability.
The emergence of “new productivity” signals a trend towards combining digital technologies like artificial intelligence with new machinery and equipment to develop innovative products and services. While promising, such ventures entail risks, including uncertainties in marketization and investment failures that governments must navigate.
To support innovation, China should focus on nurturing imaginative small businesses capable of technological advancements. These companies often become acquisition targets for larger manufacturers, leading to wider applications and improved profits.
The external market landscape is further complicated by geopolitical tensions and trade protectionism, as evidenced by recent restrictions imposed by the European Commission on electric vehicle imports from China. Negotiations between governments and international organizations like the WTO will play a crucial role in safeguarding trade interests amid evolving geopolitical dynamics.
China’s decreasing foreign trade dependence reflects a shift towards a more balanced development model, reducing reliance on external markets. However, sustaining economic growth requires mobilizing both domestic and foreign markets, emphasizing product quality and developing consumer markets in developing countries.
As China progresses from being an original equipment manufacturer (OEM) to setting global standards, concerns from Western nations about China’s technological advancements may lead to restrictions. Nevertheless, China’s commitment to innovation and adherence to its technological trajectory will ultimately establish Chinese standards and brands as dominant forces in global markets.
In contrast to Russia, China’s robust capabilities enable swift adaptation to market gaps left by foreign companies, ensuring the stability of its industrial and supply chains. Encouraging Chinese private enterprises to fill these vacancies and protecting their manufacturing capabilities are critical for sustaining growth.
While both China and Russia face challenges from foreign capital withdrawals, China’s ample foreign exchange reserves provide a buffer against such risks, ensuring stability amidst changing market conditions.
Source: Guancha, Reuters, China Daily, Asia Times
