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China's Exports Climb Back Up in November, But Sustainability Remains Elusive
Good news for China's export sector! According to customs data, exports rose by 0.5% in November compared to the same period last year, signaling the first increase in six months. However, analysts express skepticism over the sustainability of this growth due to a variety of factors.
The unexpected rise in exports can be partially attributed to seasonal factors, with increased demand traditionally coming towards the end of the year. Unfortunately, the rise was slightly marred by the global spread of Covid-19 in November, which negatively impacted international trade.
While the growth in exports is undeniably a positive sign for China's economic recovery, imports tanked unexpectedly in November, dropping 0.6% compared to October. This unexpected decrease suggests slowing domestic demand.
According to Reuters, analysts had predicted a 3.3% increase in imports, so they were disappointed by the actual outcome. The decreased demand for imports may hint at a reluctance among consumers to spend due to a slowing economy.
Analysts have also pointed out that the current trade dynamic may not be long-lasting. Ken Cheung, Chief Strategist for Asian Currencies at Mizuho Bank, said that the improvement in export growth sent a positive signal for China's recovery, but without sustainable growth, exports may struggle to weather the effects of slowing economic growth in China's key trading partners.
Capital Economics' analysts echoed these sentiments, stating that without continued price reductions, exports may not be able to withstand the impact of slowing growth among China's top trading partners. In the first eleven months of the year, China's exports decreased by 5.2% compared to the same period last year.
Analysts also noted that exports to the EU and US declined by 5.8% and 8.5% respectively in the same period. Furthermore, they predicted that the data would remain stagnant in the coming months.
Zhang Zhiwei, President and Chief Economist at Pindian Asset Management, pointed out that Europe's and the US's economies are slowing down and that China will still rely heavily on domestic demand as a growth driver until at least 2024.
China is facing a multitude of economic challenges alongside its efforts to boost export growth. These include a weak real estate market, high debt levels, and falling consumer prices. Despite these challenges, the World Bank and International Monetary Fund have revised their forecasts for China's economic growth in 2023 down to 4.4% and 4.6% respectively, and Moody's has revised its outlook on China's creditworthiness, predicting that the country's GDP growth will slow down to 4% in both 2024 and 2025.
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Source: edition.cnn.com
Insights
China's export growth, despite facing challenges, remains relatively sustainable due to several factors:
- Diversification of Exports:
- China has diversified its exports to regions like Asia, Africa, and Latin America to counter US tariffs, reducing its reliance on any single market.
- High-Tech and Green Products:
- The increasing global demand for high-tech and green products, such as electric vehicles and renewable energy equipment, has been a significant driver of China's export growth.
- Government Support:
- The government's focus on cross-border e-commerce and initiatives like the Belt and Road Initiative have expanded China's trade footprint and created new opportunities for collaboration in infrastructure, energy, and technology.
However, there are also challenges that could impact sustainability:
- Price Reductions:
- The proposed 20% price advantage for "made in China" products in government procurement could lead to price wars among Chinese exporters, potentially squeezing their profitability.
- Decreasing Domestic Demand:
- Weak domestic demand, exacerbated by wage cuts and job losses in the manufacturing sector, could further strain export growth.
- Geopolitical Tensions:
- Escalating trade tensions with the US, including additional tariffs, could weaken external demand and necessitate policies to boost domestic demand.
In summary, while China's export growth is resilient due to diversification and strong demand for high-tech and green products, the reliance on price reductions and decreasing domestic demand pose significant challenges. To maintain sustainability, China may need to focus on boosting domestic demand and implementing policies that support household consumption, as suggested by economists like Frederic Neumann at HSBC.
