Text: Ren Zeping's team
1 Review of 2023: "The new three" surpasses the "old three", Europe and the United States decline, and the "Belt and Road" risesIn 2023, China's exports (denominated in US dollars) will be -4.6% year-on-year, with a compound growth rate of 0.4% in two years, and the price decline will rise. This is related to the global economic slowdown in 2023, price cuts and orders.
The global manufacturing PMI boom has been shrinking for more than one year. In December 2023, the manufacturing PMI in the United States, Europe and the world was 47.4%, 44.4% and 49.0%, respectively.
In December, under the export growth rate of 3.8% in a single month (denominated in RMB), prices dragged down exports by 8.4 percentage points, and it remains to wait for prices to stabilize.
Trend bottoming. The growth rates in the four quarters were -1.9%, -4.9%, -9.9% and -1.2%, respectively, and the two-year compound growth rate in the fourth quarter was 6.0%, 2.8%, -1.0% and -4.9% respectively.
In 2023, China's exports to emerging economies will be significantly better than those of developed economies. The reason is that advanced economies are plagued by high inflation and high interest rates, and the overall economic prosperity is weaker than that of emerging economies. At the same time, however, it has been noted that China's share of exports to BRI economies is also rising. The growth rate of exports to the United States and Europe was -13.1% and -10.2% respectively, down 14.3 and 18.8 percentage points respectively from the previous year. After experiencing a volatile downward trend, the export shares of the United States and Europe will both remain at the level of about 15% in 2023, down 2.0 and 2.5 percentage points respectively from before the epidemic.
Replacing the United States and Europe, ASEAN's export share has risen from less than 8% in 2005 to 15.5% in 2023, surpassing the United States and Europe to become China's largest export region.
China's export highlights in 2023 are in Russia, Africa, Mexico, Saudi Arabia and the United Arab Emirates, with export growth rates of 46.9%, 7.5%, 5.1%, 12.8% and 3.4%, respectively, and a share of 3.3%, 5.1%, 2.4%, 1.3% and 1.6%, respectively, up 1.3%, 0.6%, 0.6%, 0.3% and 0.3% from before the epidemic.
In the fourth quarter of 2023, China's exports to major trading partners improved from a low base. The growth rate of exports to Brazil rebounded by more than 20 percentage points, the growth rate of exports to the United States, Taiwan, Australia, Singapore and Indonesia rebounded by more than 10 percentage points, and the growth rate of exports to ASEAN, the European Union, Hong Kong, Japan, South Korea and India exceeded 5 percentage points.
The biggest highlight of China's exports is still the continuous development of the "new three" exports. In 2023, the total export of the "new three" products, such as electric manned vehicles, lithium-ion batteries and solar cells, will exceed the trillion mark for the first time, with a year-on-year increase of 29.9%. In the past three years, the export of automobiles and parts has continued to grow explosively, with an increase of 104%, 82% and 76% respectively, maintaining positive growth for 40 consecutive months, becoming an important increment in exports.
The share of various categories has not changed much from before the epidemic, the proportion of vehicle and ship transportation equipment has increased, and textiles and mechanical and electrical products have decreased slightly. In terms of HS export goods, the highest proportion of export commodities is still the 16th category of mechanical and electrical products (including electrical and electronic appliances and mechanical equipment), accounting for 41.6% of exports in 2023. This is followed by the eleventh category of textile products, accounting for 8.62 percent of exports, and base metals (the fifteenth category) and transportation equipment such as vehicles and ships (the seventeenth category) accounting for 7.93 percent and 7.2 percent of the exports, respectively, making them the third and fourth largest categories of China's exports.
In the fourth quarter of 2023, the growth rate of exports of various products narrowed under the help of a low base. Exports of mechanical and electrical products were -1.7 percent year-on-year, 6.7 percentage points narrower than the previous quarter, exports of high-tech products were -2.8 percent year-on-year, a decrease of 10.3 percentage points, and exports of seven categories of traditional labor-intensive products were -4.1 percent year-on-year, 7.6 percentage points narrower than the previous quarter.
For the whole of 2023, China's total exports (in RMB terms) will be 23.77 trillion yuan, and the share of trade is expected to decline slightly, but it will still remain around 14%, ranking first in the world for 15 consecutive years. Against the backdrop of unclear global economic recovery, continued slowdown in demand amid high overseas interest rates, and rebalancing of global supply chains, China's exports in 2023 have shown strong resilience.
2 Outlook for 2024: There is still great uncertainty in the global economic recovery in 2024, and the improvement of external demand is limited.
The logic of the improvement of external demand lies in the fact that the tightening cycle of developed economies such as the United States and Europe is over, and the prosperity of the manufacturing industry is expected to gradually improve with the pace of interest rate cuts after being in the contraction range for a long time, boosting the demand for industrial products. In addition, the year-on-year growth rate of consumer goods imports in the United States and Europe has bottomed out.
However, the performance of the external demand is much improved. Although inflation in the United States and Europe has eased, it is still higher than the desired level, credit conditions are difficult to loosen significantly, and the U.S. replenishment cycle may be weak, superimposed on the intensification of geopolitical frictions and the arrival of a "super election year".
The key to price improvement lies in the recovery of China's domestic demand, which is expected to ease the pressure on exports.
Therefore, under the neutral scenario, China's exports will grow slightly positively in 2024, at 3% (in US dollars) for the whole year. Specifically, the baseline scenario for 2024 is that the European Central Bank and the Federal Reserve will start cutting interest rates in the third quarter, and the global economic growth is expected to stabilize, driving the growth rate of global merchandise trade back to the 3% level. On this basis, with the end of the negative growth trend in prices, China's export share stabilized at the level of 14.2%, and the RMB exchange rate rose steadily.
The U.S. destocking cycle is coming to an end, and it will be transferred to the replenishment stage in 2024, with a high probability of a weak replenishment cycle, which will have a limited impact on exports. Specifically, the current inventory cycle in the United States began in August 2020 and entered the current destocking phase in September 2022. From the perspective of nominal inventories, the U.S. inventory depletion has been relatively fast, and the year-on-year growth rate has fallen from a high of 21% to less than 1%. However, due to the impact of high inflation, the growth rate difference between nominal and real inventories in the United States has reached an extreme level in 2021-2022.
If you turn to the perspective of actual inventory, the extent of the current round of destocking in the United States is actually relatively limited, and the strength of this round can refer to the replenishment cycle at the end of 2016, and the overall strength will not be too large, more of a structural replenishment at the industry level.
The global trade environment has undergone a profound transformation in the post-pandemic era, with some medium- to long-term downside risks worth sustained attention. First of all, the high interest rate environment brought about by high inflation has suppressed global fixed asset investment, which is good for trade in services, while the digital economy, digital currencies and reopened people mobility have all brought about a more pronounced recovery in the service sector, while merchandise trade has shown weakness. Second, in the process of transforming the global supply chain from efficiency to "security", countries have also begun to increase their own investment to promote the return of manufacturing. This includes not only the innovation and development of new industries, but also the return of traditional industries such as energy, which will form a substitute for the future flow of cross-border commodity trade.
3 The two major export chains to the United States are worth paying attention to
The first is the property post-cycle sector, spurred by potential interest rate cuts. The U.S. real estate cycle has bottomed out, and with the expected rise in interest rate cuts in 2024 and the continuous completion of new housing starts, it is expected that "both volume and price will rise", and the export industry related to the U.S. real estate cycle will usher in more order demand.
U.S. real estate sales have bottomed out since December 2022, and 2023 will show an overall "price increase and volume decline". Low inventories and improved real incomes supported existing home sales, but in 2023, the U.S. real estate market is balanced by weak supply and demand, with high residential prices fluctuating and default rates flattening.
This is followed by industries that are affected by the demand for replenishment. At present, the more thoroughly the U.S. destocking industry (the lower the quantile of inventory levels), the stronger the replenishment demand in 2024 will theoretically, and the more obvious the pull on China's exports will be. The current U.S. inventory cycle presents three major characteristics: 1) The degree of destocking of non-durable goods is stronger than that of durable goods. 2) Among the non-durable goods, "food, plastic products" and other stocks are completely destocked, while "clothing, oil" and other inventory levels are high. 3) Among durable goods, "furniture and wood products" are completely destocked, while "electrical equipment" has a high inventory level.
It is worth noting that the current U.S. destocking of relatively thorough non-durable goods has limited potential pull on China's exports. If we measure the export of non-durable goods to the United States in a broad sense (HS categories 4/6/7/8/9/10/11/12), their exports account for only 25% of the mainland's exports to the United States and 3.7% of the total export value. Considering that this round is a weak replenishment cycle, from the perspective of a year-on-year growth rate of 5%, the potential export pull for the mainland is less than 0.2%, and it is not the decisive force for the export recovery in 2024. Overall, China's exports to the U.S. can expect continued recovery in 2024, but not significantly improved.
4 The "new three" exports will continue to form a driving force, and the "new three" with new energy vehicles, lithium batteries, photovoltaic and other industries as the main driving force is expected to maintain a high growth, and automobile exports are expected to continue the trend of rising volume and price, becoming an important increment of China's exports. In 2021, the total export volume of automobiles was 2,186,500 units, and in 2023, it will reach 5,222,600 units, with a compound growth rate of 54% in two years. Among them, more than 900,000 vehicles were exported to Russia, making it the largest car exporter in 2023.
Russia's share of the Chinese car market has risen sharply from 10% in 2022 to 49% in 2023. There will be room for further upward movement in the penetration rate of new energy vehicles exported to Europe. Currently, exports to Europe are dominated by fuel vehicles, which is expected to be further improved in the future, due to the constraints of climatic conditions and the relatively incomplete infrastructure related to new energy vehicles overseas.
At the same time, the export price of new energy vehicles has also continued to rise. The average price of new energy vehicles exported from the mainland has continued to increase, shifting from low-end to mid-to-high-end. The average price of finished vehicles (including gasoline vehicles and new energy vehicles) in China increased from 85,000 yuan in 2018 to 122,000 yuan in 2022, and is expected to rise to about 130,000 yuan in 2023. Among them, the average export price of NEVs increased from USD 15,000 in 2020 to USD 23,000 in 2022.
Risk warning: The U.S. economy has declined more than expected, global geopolitical turmoil has brought about a sharp contraction in trade, and global central banks have loosened less than expected.
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