In October, Chinese exports showed growth rates, which turned out to be the most intense in more than two years.
The dynamic of the mentioned indicator is because in the specified Asian country factories rushed inventory to the major markets. These actions are driven by expectations that the United States and the European Union will decide to further tighten tariffs on goods imported by the respective regions from China. It is worth noting that currently, the probability of such a scenario is high. In the context of the relevant prospects, China is taking some kind of preventive measures aimed at minimizing the potential damage from the tightening of tariff policy on the part of Washington and European capitals.
The victory of Donald Trump in the election of the president of the United States from the point of view of the most likely economic consequences, including those related to trade, means a highly realistic increase in tariffs on Chinese imports. Mr. Trump pledged to hike the corresponding figures by more than 60%. The realization of this intention will mean a shift in stocks to warehouses in China’s No.1 export market.
The so-called tariff threat is a kind of worry factor for the owners of production sites based in the Asian country and local officials. In this context, it is worth noting separately that currently China’s economic system, which is the second largest in the world, is going through a difficult period, largely the result of a deep downturn in the real estate market, which has signs of a fundamental process, and weak domestic consumer demand. Within the framework of the present situation, export activity is one of the few sources of a positive dynamic for the economy of an Asian country. The potential increase in tariffs will significantly reduce the income received by Beijing from external supplies. For the Chinese economy, the implementation of the corresponding scenario will be a factor of very sensitive damage.
Moreover, the growth of the gross domestic product (GDP) of the Asian country is already showing a slowdown. In the first half of 2024, the appropriate indicator increased by 5% year-on-year. This result is in line with Beijing’s plans for economic growth, but in this case, there is a very important nuance. The appropriate nuance is that in the first quarter of 2024, China’s GDP rose by 5.3% year-on-year, and in the next quarter the pace of this upward dynamic slowed to 4.7%. The mentioned indicators demonstrate that the world’s second-largest economy is gradually losing what can be called the power of growth.
The tariff threat faced by Beijing concerns annual shipments worth about $500 billion. Recently, there has also been an increase in tensions within the framework of trade cooperation between China and the European Union. Last year, European capitals purchased goods from an Asian country worth $466 billion.
In the context of the current condition of the Chinese economy, it is also worth noting another problem faced by Beijing, which is a drop in confidence on the part of households and businesses.
In October, goods shipments from China showed an increase of 12.7% year-on-year. In monetary terms, the corresponding figure was fixed at $309 billion. This is evidenced by the Chinese customs data, which were published on Thursday, November 7. It is worth noting that analysts interviewed by the media predicted that Chinese exports would grow by 5.2% in October. In September, the corresponding indicator rose by 2.4%.
Chinese imports fell 2.3% year-on-year in October. In monetary terms, the corresponding indicator amounted to $213 billion. At the same time, analysts interviewed by the media predicted that this figure would decrease by 1.5%. It is worth noting that Chinese imports turned negative for the first time in four months.
The Asian country’s trade surplus rose to $95.27 billion in October. In September, the corresponding figure was at $81.71 billion.
Xu Tianchen, senior economist at the Economist Intelligence Unit, anticipates a lot of front-loading going into the fourth quarter of the current year, before the pressure kicks in come 2025. The expert said that the corresponding expectations are mainly related to the victory of Donald Trump in the presidential elections in the United States. Xu Tianchen also noted that the threat is becoming more and more real. In this case, the threat of tariff increases is implied. It is also worth noting that currently there is a possibility that Donald Trump may make and implement other decisions within the framework of trade cooperation with China, which will mean economic losses for Beijing.
Shipments of goods from the Asian country to the United States grew 8.1% year-on-year last month. Within the framework of China’s trade cooperation with the European Union, the corresponding indicator rose by 12.7% over the same period.
Zichun Huang, China economist at Capital Economics, said in a note about the expectation that the mentioned shipments will remain strong in the coming months. According to the expert, any potential tariff drag by the United States may not materialize until the second half of 2025.
Zichun Huang also said that Donald Trump’s return to the White House could generate a short-term boost for Chinese exports. In this context, the expert noted that US importers are increasing their purchases to get ahead of tariffs.
Chinese customs data shows that last year the main categories of exports from the Asian country to the United States were smartphones, tablets, tablet computers, and video game consoles. It is worth noting that Donald Trump targeted China’s electronics manufacturers during his first presidential term.
Currently, there is also a decrease in global consumer demand in several product categories. Trade data from South Korea and Taiwan reflect the corresponding tendency, which is negative for China and contains risks of falling incomes. Also, German manufacturers have recently repeatedly stated difficulties in finding buyers abroad.
According to media reports, citing analyst assumptions, Chinese producers are slashing prices to find buyers or simply moving stocks out of the country.
In the Asian country, factories still face difficulties in finding overseas ordering customers. This is evidenced by the information contained in the factory activity survey for October.
Dan Wang, a Chinese economist based in Shanghai, stated that if Purchasing Managers’ Index (PMI) new export sub-index has been going down, and the export figure goes up, it is safe to say it’s more of an inventory shift.
For Chinese exporters, a positive factor was an easing in weather-related disruptions in September. In the context of this circumstance, they were able to send out delayed orders.
On Thursday, November 7, the stock indexes of China and Hong Kong showed growth. The corresponding dynamic is observed against the background of investor optimism associated with the likelihood of further measures to stimulate the economy of the Asian country. It is worth mentioning that in September, the People’s Bank of China unveiled a broad package of monetary stimulus measures. Investors expect that the list of relevant measures will be expanded. Also, on Thursday, the yuan recovered from a three-month low against the dollar.
The media, citing the opinion of analysts, report that the weakening of the Chinese national currency has probably become a factor contributing to the growth of exports from the Asian country. At the same time, experts note that this circumstance made imports more expensive.
China’s imports from the European Union fell 6.1% year-on-year in October. Goods shipments from Southeast Asia showed a decrease of 7.3% for the same period.
The volume of purchases of crude oil by China in October fell by 9% year-on-year. It is worth noting that this indicator has been on a downward trajectory for the sixth month in a row.
Zhou Maohua, a macroeconomic researcher at China Everbright Bank, said that the further slowdown in import growth is mainly due to the weak recovery of solvent demand in the domestic market and the impact of factors such as low import prices and rising bases.
At the same time, soybean shipments to the Asian country showed a sharp increase in October. The corresponding result is because grain merchants in the United States sought to ship a record large harvest to an Asian country on the eve of the US presidential election.
China’s trade engine is currently facing challenges. Analysts urge Beijing to avoid excessive dependence on external supplies of goods as a factor of economic growth. This advice is largely related to the increasing tension in the space of geopolitical relations. It is worth noting that the mentioned tendency is already reflected in the practice of interaction between Beijing and Washington. Analysts also talk about the need for additional measures to stimulate the world’s second-largest economy.
ANZ experts expect Beijing to take several monetary and other measures to overcome the difficulties that may arise from a potential tariff increase by Donald Trump.
Raymond Yeung, ANZ’s chief economist for greater China, said the Asian country’s authorities will also consider some policy measures to offset the impact of tariffs, such as subsidies or access to funding. According to the expert, commercial policy measures will also include a campaign to stimulate local consumption and develop new export markets among the Belt and Road countries.
It is worth noting that some experts have improved their projections for China’s economic growth in 2024. For example, Goldman Sachs experts last month published an updated version of the corresponding forecast, according to which the GDP of the Asian country will increase by 4.9% in the current year. It is worth noting that initially, these experts expected that the mentioned indicator would grow by 4.7% in 2024. Next year, Goldman Sachs analysts predict the Asian country’s GDP to increase by 4.7%.
At the same time, the World Bank warned last month that the slowdown in China’s upwardly dynamic economy, which is currently being observed, is likely to continue next year. Experts of this financial institution predict that in the current year, the GDP of the Asian country will grow by 4.8%. At the same time, they expect this figure to increase by 4.3% in 2025.
It is worth noting that among some analysts, as reported by the media, there is also a widespread opinion that China is currently well prepared for the potential deterioration of conditions in the global trade space. In this case, it implies a deterioration of the situation against the background of a likely tariff increase by Donald Trump. At the same time, supporters of the mentioned point of view do not deny that the implementation of a negative scenario will mean for Beijing the formation of barriers within its foreign trade activities.
In the coming months, it will become tentatively clear which international trade reality will become the space for China’s relevant activities. It will also become known over time whether Beijing will be able to form new sources of economic growth to decrease dependence on exports.
