China’s Restructuring Boosts Exports
August 24, 2017 | HSBCEstimated reading time: 2 minutes
The strength of China’s economic activity in 2017 has surprised many, not least in exports. After contracting by 7.7% in 2016, exports grew 8.5% year-on-year in the first six months of this year.
Demand in overseas markets has picked up, led by developed economies, but China’s export composition has changed too. During the downturn in global trade, its exporters quietly but rapidly moved away from traditional labour-intensive goods to machinery and electrical products. This has allowed China to benefit from the cyclical upturn since mid-2016.
Global trade growth started to slow in 2011 but China has steadily increased its share of world trade from 10% in 2007, before the financial crisis, to 12% by 2012 and more than 14% last year. That this continued in 2014-16, when global exports contracted by an average 5.5% a year, demonstrates the structural nature of the change.
Increasing technological sophistication has helped China capitalise on the rebound in global demand
So what about last year, when China’s export market share seems to have flattened? The renminbi depreciated by 5.9% against a basket of currencies in 2016, the biggest depreciation since 2003, with the sharpest underperformance against emerging-market currencies.
This likely affected the overall value of the country’s sales abroad, but China has held on to its export market share – estimated at 20.1% in the top ten markets.
Structural transformation of China’s manufacturing sector includes continued learning to move up the value chain. Its global market share in low-technology textile and footwear products peaked at more than 35% in 2007, before the financial crisis; medium-tech exports such as metal-based tools also grew sluggishly after the crisis. However, the market share in high-tech products rose sharply both before and after 2007.
The share of global exports in electronics and electrical products, for example, rose from 7.6% in 2000 to 25 per cent post-crisis, increasing to 34% in 2016, despite the severe downturn in global trade.
Especially striking is the rise in engineering equipment, household appliances, and railway vehicles from single-digit shares in 2007 to double digits in 2016.
The increasing technological sophistication of China’s export products demonstrates its continued move up the value chain and has helped the country capitalise on the rebound in global demand. China would have missed the cyclical upturn had it stuck with its traditional low value-added and labour-intensive apparel and footwear business.
This structural transformation should continue to support China’s exports in the medium term, but the closer integration with emerging markets has also helped. China’s imports from these countries have strengthened their economies, creating a strong and virtuous cycle.
Growth and rising incomes in emerging markets lead to more middle-class consumers and increased demand for machinery and tech goods, with China’s cheaper and simpler products proving attractive. China’s export market share in emerging markets rose from 16.7% in 2012 to 20.8% in 2016.
Initiatives such as the ‘One Belt, One Road’ project mean China’s connection with emerging markets will strengthen further and should provide key support to its exporters in the coming years.
Original by: Qu Hongbin, Chief Economist, Greater China, HSBC
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