Foreign trade continues to provide a strong driving force for China
With the start of the Sino-US trade war, China is ready for a more severe political and economic environment in the next few years. This is bound to be a protracted war. Years of development have successfully transformed China from a low-income economy to a middle-high-income one. Some people have observed that the share of exports in China’s GDP seems to continue to decline: from a peak of 35% in 2006 to 17% in 2019. Imports also showed a similar downward trend. It seems to be a “declining” trend in Chinese imports and exports. Actually, this is not the case. In the process of shaping China’s growth, competitive pressures, and opportunities from trade are likely to continue to play a major role.
According to the data, it seems that everything is not that smooth: the cost competitiveness of Chinese manufacturers in labor-intensive manufacturing seems to be gradually slowing down. From 2014 to 2019, China reduced its global market share by 8% in the apparel industry. Second, as Chinese manufacturers become more capable of producing higher-value parts and components, the proportion of processing exports in China’s GDP has fallen from 19% in 2006 to 5% in 2019. Third, China is gradually rebalancing from investment to consumption, and from manufacturing to service industries. The proportion of consumption in GDP increased from 49% in 2010 to 55% in 2018. From 1995 to 2018, the service industry’s share of China’s GDP increased from 34% to 53%, replacing industry as the main industry. These structural changes have reduced the share of trade in China’s GDP.
But even after such a rapid decline, Chinese contribution to global export growth is far more than any other country — leaving second-ranked Germany (7%) far behind. Its export-led growth peak period cannot be guaranteed forever, but its continued influence will never be bleak.
In the short term, China’s export-oriented industries are surprisingly strong. During the epidemic period, China has already benefited from medical supplies and electronic product experiencing a surging demand in this industry. In the second quarter of this year, these factors pushed the Chinese share of the global export market to nearly 20%-significantly higher than the 13.1% in 2019 and brought exceptionally strong export data in recent months.
Despite the strength that may not be sustainable for so long, exports to China are still more potential than generally believed. The decoupling of (US-China) trade and large-scale supply chain restructuring may be exaggerated. Foreign multinational companies are still passionate about the Chinese market. Chinese comprehensive manufacturing ecosystem cannot be easily copied to any other place.