Qiao Hong: Can the "highlight moment" of China's foreign trade continue?

From the perspective of global multinational companies, after the impact of the epidemic, the management strategy of the supply chain will move towards diversification, and the layout orientation of the supply chain will shift to the comprehensive balance of efficiency and risk

Wen | Reporter Wang Yanchun of Caijing

Edit | Su Qi

On January 14, the General Administration of Customs released the latest data, the total import and export value of China's trade in goods in 2021 was 39.1 trillion yuan, an increase of 21.4% year-on-year. Among them, exports were 21.73 trillion yuan, an increase of 21.2% year-on-year; imports were 17.37 trillion yuan, an increase of 21.5% year-on-year. In US dollar terms, the scale of imports and exports reached 6.05 trillion US dollars, and the performance of foreign trade was strong.

Can 2022 continue the "highlight moment" of foreign trade in 2021? Li Kuiwen, spokesman of the General Administration of Customs and director of the Department of Statistical Analysis, said that in 2022, foreign trade will face more uncertainties, instability and imbalances. China's economic development is facing the triple pressure of contraction in demand, supply shock and weakening expectations. The global epidemic situation is still grim, the external environment is becoming more complex and uncertain, and the recovery momentum of international demand has slowed down. Coupled with the factors of a higher foreign trade base in 2021, the operation of foreign trade in 2022 is facing certain pressure.

Ren Hongbin, vice minister of the Ministry of Commerce, said when talking about foreign trade work in 2021 that under the impact of the epidemic, the world economy is fragile and recovering, the growth of foreign demand is weak, the "three shortages" such as lack of cores, cabinets, and labor, and the "four liters" problems such as freight, raw material costs, energy resource prices, and rmb exchange rates directly increase the burden on enterprises. At the same time, the order return and price increases that support the high growth of foreign trade in 2021 are difficult to sustain, and it is more difficult to do a good job in stabilizing foreign trade in 2022 by superimposing the impact of the ultra-high base in 2021.

Qiao Hong, chief economist of Greater China at Bank of America Securities, predicted in an exclusive interview with Caijing reporter that due to the relatively strong resilience of China's economic industrial chain, the integrity of the industrial chain and the relatively strong supporting capacity, China's exports will still be resilient in 2022, but the growth rate may marginally slow down. Coupled with the high base of foreign trade imports and exports in 2021, it is difficult to continue to maintain rapid growth this year.

So, how will China's foreign trade continue its growth momentum in 2022? What issues need attention? What new changes will occur in the global industrial chain? Can RCEP open up new trade space? Qiao Hong recently expressed her views on this in an exclusive interview with Caijing reporters.

One

Caijing: China's foreign trade has experienced a "highlight moment" in 2021. It has become the main supporting force for China's economic growth. What do you think is the main reason for supporting the high growth of foreign trade in 2021?

Qiao Hong: Indeed. Global trade has experienced a sharp decline in 2020, and global trade has achieved a strong recovery in 2021 under the influence of the low base effect in 2020, the strong recovery in demand, the introduction of economic stimulus packages by countries and the rise in commodity prices. In particular, China's foreign trade is even more eye-catching in such an environment, and in the "troika" of economic growth, the "carriage" of foreign trade is the most powerful. The General Administration of Customs released the latest data on January 14, 2021, in US dollar terms, China's import and export scale reached 6.05 trillion yuan, and the increase in foreign trade this year reached 1.4 trillion yuan.

From 2020 to 2021, China's exports will be supported by several major categories of product exports.

First, electronic products. Electronic products are mainly PCs and tablet pCs, which entered a small peak in the second quarter of 2020 from the beginning of the epidemic, and then in the third quarter of 2020, there was a second wave of peaks, until the first half of 2021, which maintained a strong growth trend. In particular, the base in the first quarter of 2020 is very low, and the growth rate in the first quarter of 2021 is very high, and this kind of product presents a very eye-catching "highlight moment". The strong export of such products is mainly due to the demand of residents working from home under the epidemic, for example, the original home is not how to do business, now everyone will use computers and related electronic products, and even need to redesign a set of office systems.

Second, people stay at home for a long time and begin to want to beautify their home environment, which basically involves China's export of durable consumer goods, especially furniture, lamps and lanterns. In the second quarter of 2020, it became more and more prominent, and export growth in this area hit a record high, which was maintained until around the third quarter of 2021, and the demand for such goods continued to be strong for a long time.

The third category is mainly related to the need to fight the epidemic. For example: masks, protective clothing, ventilators and other medical equipment. These demands lasted a year in 2020, especially the last three quarters, and the growth in 2021 is still good, but not as strong as when almost every household hoarded at the beginning of 2020, and the demand for exports of such products is slightly weaker than the two categories just mentioned.

Therefore, the above three types of products have been the most important driving force for China's exports in the past two years. Provide support for the stability of the entire macro.

Caijing: Can China's foreign trade continue this growth momentum in 2022? What growth bottlenecks will you encounter?

Qiao Hong: In 2022, foreign trade operations do face certain pressure. China's economic development is facing the triple pressure of contraction in demand, supply shock and weakening expectations. The global epidemic situation is still grim, in addition, superimposed on the high foreign trade base in 2021 and other factors, the "highlight moment" of exports in 2021, it seems more difficult to continue in 2022, if the final judgment of Aumi kerong is not a very destructive virus, it will not make European and American countries large-scale lockdowns, resulting in everyone going to work at home, unable to go to school, if the opening can be normalized, the support of external demand for China's exports will continue, but the marginal contribution may show a decline.

If we add a little more, it is important to note that the competitive advantage of Chinese exports is no longer so obvious. For example, in 2021, many people in the industry said that exports will not be good for too long, because other countries have caught up with the improvement of the epidemic, and they did not expect to have a wave of Delta virus, especially in Southeast Asia, which is more seriously damaged, and the advantages of our manufacturing export competition are still relatively open. However, from the end of 2021 to the present, many emerging market countries are rushing up to undertake a wave of momentum to resume work and production, such as Vietnam, for many international brands, Vietnam has become the first production base after Chinese manufacturing. Vietnam's exports in the fourth quarter of 2021 exceeded growth, mainly driven by the export of manufacturing, far exceeding the original expectations. Now seeing the gradual recovery of the economies of Southeast Asian countries, orders in Europe and the United States have begun to increase. Of course, this also depends on the impact of the Omilon virus, if the current state of Omilon does not lead to a large-scale global catastrophic shutdown, I think the competitive advantage of China and other countries may not be so obvious.

Caijing: You just mentioned the manufacturing capacity of Southeast Asian countries and Vietnam. I understand that due to the outbreak of the epidemic in 2020, the epidemic in Southeast Asia, Vietnam and other regions and countries was serious, and some manufacturing orders returned to Chinese mainland. If, as the epidemic weakens, the economy gradually recovers, and some of China's manufacturing industries continue to move out, is this a long-term factor affecting China's trade?

Qiao Hong: Until now, the changes in the global supply chain in the past two years may be both a structural and a cyclical trend. This supply chain disruption may also be difficult for entrepreneurs to judge because plans cannot catch up with changes. When the company originally planned to relocate from the southeast coast of China to Vietnam, Laos, Cambodia and other countries, he thought that China's domestic labor force was too expensive, it was cheaper to go there, and the policy was more favorable, the land was cheaper, and the capital pursuit of profit maximization and cost minimization must have sufficient reasons for relocation. In the past two years, it can be seen that Southeast Asia's geographical advantage is more obvious in exports to Europe and the United States, which has made everyone accelerate the speed of manufacturing transfer in the short term. Enterprises think that this is a long-term structural trend, but the epidemic has disrupted such a plan, and when the epidemic comes, the prevention and control of the epidemic in these countries and regions, as well as the dispatch of upstream and downstream products in the entire supply chain under the epidemic, lack a large grouping effect. More critically, the number of people in Vietnam, Cambodia and other countries is limited, although it can reduce the production cost of enterprises, but the large number of products can only be sold to achieve value realization. The local market is seriously insufficient, everything is expected to be exported, and the transportation capacity has become a great constraint, which has formed a short-term fatal blow. Last year's wave, Southeast Asia and major emerging markets were almost not spared, there was a large-scale shutdown, the entire economy suffered a very big blow, so that many supply chains were affected in the short term, so that some companies that decided to relocate or have relocated had to reconsider.

Our research shows that the future may be the norm, if under the epidemic, transportation is affected, people flow, logistics are limited, there may be a more obvious trend of supply chains around the large-scale market. For example, China has a huge market, and many supply chains cannot be left behind, and it needs to be produced in this place for local consumption. Therefore, I think China basically does not have to worry about the supply chain transfer abroad, because the Chinese market is so big, at a time when the current global flow of people and logistics are not easy to enter and exit, it is impossible for companies to give up such a large market and move to other places.

Caijing: Indeed, in 2021, some enterprises relocated to Vietnam found that the supply chain was insufficient, the reserves of raw materials required for production could not meet the needs of enterprises, and the logistics costs were not small, and they moved back to Chinese mainland cases. Coupled with the recovery of China's supply chain and industrial chain, the orders that were originally lost to Vietnam, India and Southeast Asia flowed back to China.

Qiao Hong: Of course, the US market is also very large, both major markets in China and the United States can ensure the landing of manufacturing products, especially China has a manufacturing base, maintaining this supply chain is the most suitable environment in China, because there is not so much geopolitical impact, otherwise, even if you relocate to Cambodia, Laos, Vietnam, how to ensure that the policy has been stable, foreign trade is smooth, and the products will be shipped whenever they want.

So, this is a basic situation under the assumption of the epidemic. If the epidemic can show a significant improvement in the future, and the flow of people and logistics have been fully restored, from the perspective of the distribution of business formats, it is possible that the manufacturing layout of enterprises will have more freedom. But even if the circulation is smoother, I think that in the environment of the Sino-US "trade war", the globalized environment is worse than before, so there will not be so many companies that simply consider land and labor costs without considering other comprehensive factors. Companies will consider a number of factors to balance the choice.

In 2021, there was a similar stress test to deal with the crisis, which is a very interesting experiment, when Chinese mainland factory, Poland has a factory, Mexico has a factory, and manufacturers of auto parts supplying the three major markets of China, the United States and Europe, and finally found that they can only completely transfer orders back to China. At this time, we can see that even if the epidemic has passed, it is still necessary to maintain a certain trend of diversification and diversification of the industrial chain to prevent the risk of chain breaking.

Caijing: Just like the "1+N" strategy proposed by Japan at that time, the future supply chain may not be as long as in the past, and it may be a trend of decentralization, regionalization and short-termization. Is it due to the obstruction of globalization, the deceleration of global trade and investment, especially the trade structure dominated by intermediate goods is declining? Is this change in the supply chain a structural, cyclical variable?

Qiao Hong: Because we don't know whether the epidemic is structural or cyclical, depending on the changes in our environment, we can know whether the recent arrangements can be permanently fixed.

As you said, the supply chain has a tendency to become shorter, and it may only be suitable for some large countries, and only large countries with labor and capital have this ability. Like Cambodia or Laos, although the land is cheap, the labor is cheap, and the policy is favorable, how much can it carry? Especially electronic products, there is a certain need for manufacturing technology, not to build a factory, find some people, training for a few weeks can be on the job. Therefore, as far as the entire chain is concerned, the release of industrial transfer pressure requires a process, which provides a time window for China to consolidate its industry, and there is still a lot of room for the attractiveness of the Chinese market for global enterprises, and if China can improve the business environment, it will still maintain the most important position in the global supply chain.

From the perspective of global multinational companies, after the impact of the epidemic, the management strategy of the supply chain will move towards diversification, and the layout orientation of the supply chain will shift to the comprehensive balance of efficiency and risk. Under the path of diversified globalization, it may lead to a certain degree of industrial migration, but this is different from pure industrial outward migration. In the future, the global supply chain layout should be managed through diversification.

"Finance": When it comes to supply chain issues, it is obvious that it is necessary to mention the global trade blockage in 2021, the freight rate has soared, shipping is not smooth, the supply chain is blocked, "a box is difficult to find" and "the value of the goods cannot meet the freight rate". Many foreign trade enterprises reflect that there are many orders, but they do not make money. Will this situation improve in 2022?

Qiao Hong: Shipping variables are more difficult to judge. But I don't think shipping will start in September 2021 and continue into the fourth quarter. Because a lot of long-distance transportation, or will play the amount of advance, in general, the ship schedule and ship position for relatively large suppliers, its predictability is relatively strong, such as Wal-Mart, Apple and other enterprises, Wal-Mart may have chartered the entire route and even the terminal half a year ago, so he has not been greatly affected. But those who sell Christmas decorations, trinkets, or furniture, etc., such transportation costs will rise sharply.

Because the capacity of china is closely related to the acceptance and processing capacity of U.S. and European ports, the correlation is relatively high. For example, china's shipping to the United States, our research report found that it is mainly because of the shortage of dock workers in the United States. At U.S. airports and American Airlines, there are also shipping congestion caused by a shortage of manpower.

Objectively speaking, the shipping situation in 2022. On the one hand, it may still depend on the impact of the epidemic on the supply chain; on the other hand, it may also be seen that if there is an adjustment, it may not be as strong as it is now in terms of demand. Why is demand so strong in 2021? It is because the US government has issued a lot of subsidies and directly distributed cash to individuals, and everyone's enthusiasm for buying things is very high, and the demand is particularly strong. At present, the stimulation of this part has basically passed, the money is almost spent, if you do not have such a strong demand in 2022, the order is not so much, it may not be as prominent as in 2021.

Caijing: Just now we mainly talked about the situation of trade in goods, what do you think will happen to trade in services in 2022?

Qiao Hong: If you are specifically referring to China's service trade, China's service trade in recent years is quite interesting, in the tourism service trade, cross-border tourism in the past two years basically zero under the premise that our other service industry imports are obviously forced, such as the software industry, such as invention and creation patents, as well as intellectual property patents, China's service industry imports, basic growth is good. In particular, the overall trend of service trade, including knowledge-intensive trade in services, stabilizing and improving has not changed. In recent years, China's knowledge-intensive service trade has maintained a steady growth trend, with a total import and export volume of 2,042.8 billion yuan from January to November 2021, an increase of 13.5% year-on-year. Among them, exports increased by 18.1% and imports increased by 8.3%. Trade in knowledge-intensive services maintained steady growth. The rapid development of digital technologies has spawned a large number of digital needs. Online offerings and online consumption of audiovisual services, healthcare, education, and online retail have grown significantly.

A few years ago, Chinese consumers ran all over the world, global consumption, global tourism, the epidemic struck, suddenly everyone can not go abroad, in theory, it should be a sharp decline in service trade, should make the growth of service trade sluggish. However, the import and export situation of trade in services is always good. Our research has found that although we do not go out to travel, but recently may be due to the development of high-tech and other related manufacturing industries, or the improvement of some external intellectual property enforcement, so the import of software industry and intangible assets in this area, the import of this kind of service can also be.

For 2022, I don't think the growth trend of trade in services will change. If the COVID-19 epidemic can be suppressed, countries will gradually switch on and off local areas, and finally the overall switch, which can further promote trade in services. First of all, we pay more attention to when Chinese mainland can switch on Hong Kong, and then see if we can switch on and off people in other regions. Hong Kong has been closed for more than a year, which has had a great impact on many cross-border people and industries who need to travel frequently between the Mainland and Hong Kong, and many people are looking forward to the resumption of normal customs clearance between the two places at an early date. At present, Hong Kong's chief executive has said that it may be switched off at the end of March 2022, which is the month when the Beijing Winter Olympics will end, and it may also be the day of customs clearance. Some corporate clients are also asking me when China will switch on Japan so that Chinese tourists can come to Japan to rescue their tourism industry. This may still have to wait for a process.

Caijing: Speaking of switching, there are european countries that plan to switch on and off in 2022, and if the harm or lethality of Omilon is not so strong, some countries will switch on each other. If China can't switch, will the economy be marginalized?

Qiao Hong: It is foreseeable that with the popularization of vaccines, the impact of the epidemic on the economy will decline, and it is expected that more economies will restart their economies, open their borders, and choose the model of coexistence with the epidemic. Medical expert Zhang Wenhong and other experts may have also mentioned such a possibility, if many countries around the world switch on each other and only leave us behind, we will face this problem. But now one of the potential problems with switching or not switching is that it is not isolated to solve the problem. Now in addition to quarantine, we have also added control measures such as visas and other aspects. When can the control measures be relaxed, people at least want to come and go, willing to isolate or let him isolate. Therefore, it may be necessary to wait until at least some major events such as the 2022 Winter Olympics are completed, and the control measures will be gradually relaxed when the conditions are ripe.

Caijing: What pressures may the country's export growth rate face in 2022?

Qiao Hong: I think 2021 is really an eventful autumn. Maritime pressure, power curtailment, and the influence of competitors on us have formed a certain pressure in many aspects. But I think the overall risk is controllable, especially the expansion of the PPI just mentioned, the pressure risk of pulling the brakes and curtailment and transportation is limited. In fact, I think the worst time, especially these three risks, may have passed. But there are still any new downside risks that may still be on the way. I think at present, I may be more worried about it from the perspective of external demand. If the United States enters the interest rate hike, the United States' own demand can be maintained at a relatively high level, we think it is OK, but for emerging markets, every US interest rate hike will lead to a disorderly change in capital flows, whether it will have a certain impact on our exports, which I think is also a certain uncertainty.

OtherS think it's okay, just talked about the problems I saw in 2021, I think it should be said that the worst time has passed.

Caijing: RCEP came into effect on January 1, which brings new growth space to China's trade?

Qiao Hong: At present, the regional comprehensive economic partnership (RCEP), the world's largest free trade agreement, came into effect on January 1. I think the political benefits and economic effects are quite large. We wrote a report last year that summarized and summarized the overall volume of trade changes within the Asian region. We found that in the past, the United States and Europe were actually China's largest exporters, especially since the first half of 2020, when suddenly ASEAN countries suddenly became the largest exporters. At this point, although later we saw that the United States and Europe rose again, but even in such a short period of time, we also saw a little dawn, the East is not bright, the West is not bright, now the West is not bright, the East is bright. So at that time, we saw that although the economies around us were relatively small compared with the United States and Europe alone, we could see that their absorption was still increasing year by year, especially because of some changes in the layout of the supply chain, especially for countries such as Cambodia and Vietnam, a large number of electronic products were repeated on both sides of the border. This is especially true at the beginning of the epidemic, when there was still a relatively obvious volume of cargo. What can be seen is that within the region, due to economic cooperation and changes and developments in the layout of cross-border production lines, this trade chain has actually been greatly promoted. What do you mean by the impact of RCEP on the region? It is likely to strengthen regional cooperation to a greater extent, and trade exchanges may become more convenient in the future. In the case of mutual certification in the market, it is simple and convenient for a product to be produced in one country and processed in another country, then sold back in this country, or then to a third country.

Therefore, in the context of international geopolitics becoming complex and uncertain, a regional trade agreement such as RCEP is good for China and its neighbors, but we should also be aware of certain risks, especially in some countries around us, their own market is not so large, but they themselves have manufacturing and processing capabilities, for us, there are some risks such as industrial transfer.

Two

Caijing: The Fed has released a signal of interest rate hikes in 2022, and monetary policy has contracted to a certain extent. How will the changes in the RMB exchange rate affect foreign trade?

Qiao Hong: Of course, the exchange rate and foreign trade are mutually causal. From the perspective of foreign trade, it is still necessary to look at the real exchange rate, not the nominal exchange rate. At present, the factors affecting foreign trade are mainly the fundamental factors we analyzed above. In 2021, China's export amount reached 3.36 trillion US dollars, with an annual growth rate of 30%, whether it is absolute scale or growth rate, the results are good. If it is such a state of trade growth, it should be supportive for the renminbi, because the surplus of trade equilibrium is still wider than last year. At the same time, in the current situation of relatively tight world supply chains, commodity prices remain high, while becoming more dependent on China's commodity manufacturing, resulting in Strong Chinese exports, a large number of dollars pouring into China, and the settlement of foreign exchange by Chinese traders are the main reasons for the appreciation of the RMB exchange rate.

Since 2021, the RMB exchange rate has maintained an appreciation trend in the midst of fluctuations. From April to May and from October to early December, two rounds of more obvious appreciation were staged. On December 9, 2021, the exchange rate of the renminbi against the US dollar appreciated to 6.3498, a new high in more than three years. Our Bank of America Securities Department predicts that the renminbi will depreciate slightly to 6.6 against the US dollar at the end of 2022.

Of course, it is not only the trade fundamentals just mentioned, but also the change in the relative tightening of monetary policy. The Fed raises interest rates in 2022, and monetary policy will become tighter and tighter. Chinese Min bank's forecast is to continue to relax, after the interest rate cut and RRR cut in 2021, I think there will be further interest rate cuts and RRR cuts in 2022. It can be said that the Monetary Policy of China and the United States is one to the left and one to the right, and the direction of change in monetary policy expected by the Federal Reserve and the Chinese Bank will deviate to a certain extent, and we see that in general, this divergence will affect the expectations of the foreign exchange market, resulting in the appreciation of the currency of the country where the monetary policy is tightened relative to the currency of the country where the monetary policy is relaxed, that is to say, the RMB will depreciate slightly in 2022.

Caijing: Do you feel that China and the United States have a policy mismatch in monetary operations, or macro-control?

Qiao Hong: It can't be said that it is a mismatch, each has its own troubles. Monetary policy in the United States should have tightened earlier, and China should have eased earlier. This point in time is indeed like it has not been adjusted, and there is no two people to negotiate, as if the timing of the occurrence is not very coincidental. But I think that China and the United States are big countries, and the US monetary policy only looks at the domestic, similarly, China's monetary and fiscal policies, do not look at the face of the United States, in the fundamentals, I think China still has the relative independence of monetary policy, I can not be like other emerging market economies, look at the face of the United States every day to talk and do things. In 2021, the United States and other major markets in the world have a commonality, that is, after the large-scale stimulus policy, the overall economy is soft, and the supply has been hit more severely by the epidemic. However, demand as a whole, due to the role of fiscal and monetary stimulus policies, maintained in a relatively good state of recovery, so for these countries and regions, the United States, Europe, Australia, and some major emerging market countries, showing obvious inflationary pressures, supply constraints, strong demand. In fact, it is not that the demand is too strong, but the supply is too weak, which forms a relatively fixed self-actualization inflation expectation, and even when this inflationary expectation enters the expectation of rising labor costs, monetary policy intervention is needed, and the Fed needs to do things. For example, interest rate hikes began in March 2022, several times a year, two consecutive years, and then 1-2 times in the third year. Subsequently, the Fed may raise interest rates and reduce the balance sheet "two-pronged".

In fact, the focus of china's main monetary policy and macro policy should still be stable demand. Compared with China's resilient supply side, we are more effective in controlling the epidemic, and the overall supply chain is relatively strong. Relatively weak to our demand, whether it is investment demand, such as real estate infrastructure, or consumer demand, there has been a relatively sluggish state. In such a situation, the policy is mainly from the perspective of stimulating demand, and the currency, finance and credit are relatively loose.

Caijing: When it comes to inflation, we need to pay close attention to global inflation trends and be wary of the potential impact of imported inflation on China's economy. With insufficient energy supplies and commodity prices skyrocketing in 2021, could this improve next year?

Qiao Hong: The stressful state of 2021 may no longer exist, and that time has passed. This year I think there should be a clear downward trend. Of course, the uncertainty lies mainly in energy prices. Energy is only a small part, the price of other raw materials has actually fallen, most of the metal Consumption in China accounts for more than 50% of the world, if the consumer demand is insufficient, how can it rise? So I think the inflationary pressure on the PPI will be significantly lower in 2022.