Surprising rise in Chinese exports in November

Shocking Boost in Chinese Exports to Russia in November

The economic woes and inflation hitting Europe and North America in particular have led to a slump in demand for Chinese goods. As per the data, this gloomy scenario continued into November: exports to the USA were 13.8% lower than the previous year, while exports to Europe dipped by 11%. Contrarily, exports to Russia soared by an astounding 50.2%.

Beyond the economic situation in Western buyer nations, geopolitical tensions with the USA are also affecting Chinese foreign trade. The EU is also attempting to lessen its reliance on China or diversify its supply chains.

Economist Zhiwei Zhang from Pinpoint Asset Management cautiously observes, "Despite an improvement in exports, it's uncertain if exports will significantly contribute to growth next year." China, thus, needs to focus on domestic demand as its primary growth engine.

However, Chinese imports also suffered a setback in November. Exports had plummeted for eleven consecutive months before rebounding in October. With a 0.6% decline, the downturn persisted, suggesting a weak phase for both domestic consumption and Chinese industry.

Additional Insights:

Several factors are contributing to the unexpected surge in Chinese exports to Russia, despite economic challenges and geopolitical tensions with the USA and EU:

1. Western Sanctions on Russia: The economic sanctions imposed by the EU, the US, Canada, and other nations against Russia have considerably restricted the flow of goods and capital to Russia, prompting a substantial increase in Russia's dependence on China for consumer and industrial goods.
2. China's Role as Supplier: China has emerged as the main supplier of various consumer and industrial goods to Russia. In the first ten months of 2024, China accounted for approximately 34% of Russia's foreign trade, up from 18% in 2021. This increase is primarily due to China's privileged access to the Russian automotive market and its significant role in supplying oil, coal, and natural gas exports.
3. Infrastructure Developments: Infrastructure developments such as the China-Russia Heihe-Blagoveshchensk highway bridge and the Tongjiang Railway Bridge have boosted agricultural trade between the two nations. Moreover, the construction of a grain terminal in Zabaikalsk near the Chinese border has enhanced the loading capacity for agricultural exports.
4. Energy Trade: The majority of Russia's trade is centered around the energy sector. In 2022, Russia exported 64 million tonnes of coal, 86 million tonnes of oil, 6.5 million tonnes of LNG, and 15.5 billion cubic meters of natural gas to China. The energy trade between the two nations has witnessed a significant upward swing, with Russia's energy exports to China surging to $46 billion in the first half of 2024, representing a 4% increase over the previous year.
5. Strategic Partnership: The strategic partnership between Russia and China has been reinforced through various agreements, including a joint development plan outlining key areas of Russia-China economic cooperation until 2030. This plan encompasses boosting trade and investment, developing interconnected logistics, expanding the use of national currencies in trade, strengthening energy cooperation, and enhancing industrial cooperation.
6. China's Economic Leverage: China's economic sway over Russia is substantial, as more than a third of Russia's exports are directed at Chinese markets. This leaves Russia at a disadvantage, making it vulnerable to shocks in the Chinese economy or alterations in Chinese legislation. China's disinterest in long-term investments with Moscow and its preference for engaging with large cities rather than investing in Russia's Far East further underscores this economic advantage.

Further Reading:

The challenging economic outlook in North America and Europe has not deterred China from witnessing a surprising surge in exports to Russia in November. This drop in exports to the USA (13.8%) and Europe (11%) contrasted sharply with the 50.2% increase in exports to Russia.

Geopolitical tensions between China and the USA as well as the EU's efforts to lessen its dependence on China or diversify its supply chains have influenced Chinese foreign trade.

Economist Zhiwei Zhang from Pinpoint Asset Management cautiously notes, "Despite an improvement in exports, it's uncertain if exports will significantly contribute to growth next year." In such a scenario, China needs to focus on domestic demand as its primary growth engine.

Concurrently, China's imports took a hit in November, with exports falling for eleven consecutive months before rebounding in October. This downturn, with a decline of 0.6%, indicates a weak phase for both domestic consumption and Chinese industry.

The ongoing geopolitical tensions between China and the USA have posed additional challenges to the Chinese export economy, which has been impacted by rising inflation in both North America and Europe.

Experts suggest that the high dependence of the Chinese economy on exports could negatively impact China's economic growth in the future. Therefore, efforts to diversify the economy and boost domestic demand are becoming increasingly crucial.

In light of these challenges, China is seeking to deepen its economic ties with Asian and African countries, aiming to offset the impacts of strained relations with Western nations. Recently, numerous multinational corporations have announced plans to transition their manufacturing bases from China to Southeast Asia, seeking to reduce their dependence on the Chinese market and escape rising inflation, labor costs, and other economic factors that had previously made China an attractive export hub.