As China enters a period of coexistence of strategic opportunities, risks and challenges, and increasing uncertainties and unpredictable factors, the uncertainty of external demand continues to intensify, and the demand-side pressure on export trade in terms of "quantity" and "quality" is increasing day by day. Since 2012, China's export growth rate has shown a "wave" change, falling to a trough of -8.05% in 2016, rebounding to 9.41% in 2018, only to drop sharply to 0.50% in 2019. Although China's export trade has gradually recovered under the steady adjustment of epidemic prevention and control policies, since February 2023, the new export orders index has fallen again, from a high of 52.40% to 46.40%, and the annual export growth has only achieved 0.6%, and the export situation is still grim. Correspondingly, the quality of the mainland's exports has also continued to decline amid fluctuations. Using prices as an approximate indicator, the ratio of the quality of China's export products to the world average fell from 0.75 in 2012 to nearly 0.6 in 2020, a decline of 20%.
In order to promote the high-quality development of the mainland's foreign trade and actively respond to the uncertainty of external demand, since 2022, the General Office of the State Council has successively issued policy documents such as the "Opinions on Promoting the Stability and Quality of Foreign Trade" and the "Opinions on Promoting the Stability and Optimal Structure of Foreign Trade", clarifying the policy requirements for maintaining the stability and improving the quality of foreign trade. The 2024 Government Work Report further emphasizes the promotion of the qualitative and quantitative stability of foreign trade. As far as export trade is concerned, how to find a suitable entry point between "improving quality" and "stabilizing exports", and opening a virtuous circle of seeking progress while maintaining stability and promoting stability with progress has become an important issue to be solved urgently.
The key to "stabilizing exports" lies in "improving quality"
In recent years, global "gray rhinoceros" and "black swan" events have occurred frequently, and global uncertainty has become increasingly strong. The uncertainty of demand is different from the accidental change of demand formed by the impact of a certain event, and it is a kind of random and continuous demand fluctuation. This volatility does not end with the disappearance of its triggers, but rather persists for a long time or even stacks up. At the same time, with the deepening of the division of labor in the global value chain, under the influence of factors such as industrial linkages, policy coordination, and trade dependence, the demand of various countries is deeply interrelated, and the demand uncertainty also shows more and more obvious cross-border correlation characteristics. The fluctuation of a country's demand spreads globally through this correlation, so that the rapid changes in the external environment show a strong holistic and systemic nature.
In this context, the mainland is facing severe challenges in promoting the quality and quantity of foreign trade, and it is difficult to overcome the practical pressure of demand uncertainty with the traditional policy idea of "stabilizing exports" and promoting "improving quality". Against the backdrop of uncertainty in world demand, the magnitude, synergy and persistence of demand fluctuations have increased significantly, weakening the ability of export movements to reflect external demand conditions. For example, an increase in exports may reflect an expansion in demand at a destination, or it may simply be a result of random fluctuations in demand in that destination, or it may be the result of fluctuations in demand in other countries. Therefore, as long as the uncertain demand environment does not change, it is difficult for enterprises to improve the quality of exports in a short period of time without being able to directly affect the demand of the destination. At the same time, the practice of diversifying external risks by promoting the diversification of export markets will also be greatly discounted by the cross-border correlation characteristics of external demand fluctuations, and even amplify systemic risks, which will further exacerbate the difficulty of enterprises in improving quality.
On the contrary, only by "improving quality" and promoting "stable exports" can we achieve a positive cycle of maintaining stability and improving the quality of foreign trade. In recent years, the export of some products from the mainland has still shown an upward trend against the trend. Taking new energy vehicles as an example, the export growth rate of new energy vehicles in mainland China from 2021 to 2023 will reach 344.9%, 120.2%, and 113.9% respectively (January-August 2023). The fundamental reason behind this is that long-term technology research and development and innovation have greatly improved the quality level of such products, thus creating greater demand stickiness in the target market. The improvement of product quality responds to the practical needs of market demand, and cuts into the constant factors in the repeated changes in demand, so that such products show a steady and rising export trend. More generally, higher-quality products tend to show more stable export growth rates. According to the French Institute for International Economics, at the lowest point in 2015, the global export growth rate of high-quality products was -5.42%, much higher than the -15.13% of low-quality products, while in 2019, the export growth rate of high-quality products showed a stronger upward momentum, reaching 33.37%, and the export of low-quality products increased by only 7%. Therefore, in the uncertain external demand environment, it is the core measure to achieve the stability and quality of foreign trade to promote "stable exports" with "quality improvement" as the key starting point, and to open a positive cycle of "quality improvement" and "stability promotion".
Better meet external needs with high-quality products
The uncertainty of external demand and its cross-border correlation impose two constraints on the quality decision-making of enterprises. First, compared with a certain demand environment, enterprises are more inclined to make long-term, multi-market comprehensive judgments on uncertain external demand, and form negative expectations for the overall fluctuation of international demand. The greater the volatility and the stronger the negative expectations of risk, the more likely it is that companies will reduce their investment decisions in improving product quality. Second, because the demand of various countries usually fluctuates in tandem, this cross-border correlation further deepens the negative expectations of enterprises on the external environment, and enterprises reduce export behavior and quality input in order to ensure stable profits.
Since the uncertainty of external demand mainly comes from the demand side, it is difficult to fully release the policy potential and fundamentally solve the practical difficulties faced by enterprises by reducing the costs of production, sales, circulation and financing from the supply side. Therefore, combined with the role of stabilizing demand produced by product quality itself, we should start from the demand side, by enhancing the matching degree between the supply of enterprise products and the demand of the target market, and using high-quality products to better meet the actual needs of external demand, so as to reduce the fluctuation range of demand and enhance the willingness of export enterprises to improve product quality. At the same time, giving full play to the role of stabilizing the demand for high-quality products can also help enterprises reduce multi-link costs, obtain greater space for quality improvement, and then enhance the incentive effect of supply-side policies characterized by reducing the cost of production, sales, circulation and financing.
Optimize the practice path of foreign trade quality and quantity stabilization
Based on this, the mainland can start from the following aspects to promote the quality and quantity of foreign trade, taking into account the "quality improvement" and "export stabilization".
First, we should grasp the regularity and correlation characteristics of fluctuations in external demand, and correctly understand the important role of "improving quality" and "stabilizing exports" in ensuring that foreign trade is stable and progressive. Grasp the core content of improving the quality of export products, solve the supply-side difficulties of foreign trade enterprises by strengthening production and operation guarantees, smoothing the transportation of foreign trade goods, and increasing export credit financial support, and at the same time take reducing the cost of quality improvement caused by demand uncertainty as the entry point, and realize the coordinated force of supply and demand policies by enhancing the role of high-quality products in stabilizing demand, so as to better promote the stability and quality of foreign trade.
Second, accelerate the cultivation of new models and new business formats, strengthen the role of high-quality products in stabilizing demand from the demand side, and improve the matching degree of export products with target market demand. On the one hand, relying on new forms of digital trade such as cross-border e-commerce, we can further reduce the information cost of overseas demand to search for domestic export products, and improve the ability to match the supply of products of different quality with multi-level demand. On the other hand, relying on high-quality platforms such as the Belt and Road Initiative, the Regional Comprehensive Economic Partnership (RCEP) and international exhibitions, we will create online and offline display opportunities for export products, help overseas consumers and enterprises understand product information more closely and at a deeper level, and enhance demand stickiness. In addition, it can also optimize the information consultation, enterprise docking, commercial law and other services of the mainland international trade promotion agency in overseas markets, and guide export products to better connect with the international market.
Third, on the basis of improving the quality of export products, we should promote the diversification of foreign trade. If we ignore the important role of high-quality product exports in stabilizing demand, the cross-border correlation characteristics of external market demand fluctuations will directly weaken the role of foreign trade diversification in stabilizing exports, and may even further increase the level of external risks faced by export enterprises through increasingly diversified target markets. Therefore, the promotion of foreign trade diversification should be based on enhancing the core competitiveness of export enterprises. Promoting the quality of export products will effectively complement the diversification strategy, ensure that enterprises stand firm, deepen the target market, and enhance the stability of export trade.
(This article is the interim result of the major project of the National Social Science Foundation of China, "Research on the Adjustment of International Trade Policy System and China's Response Strategies in the Context of Global Value Chain" (21&ZD083))
(The author is the director of the academic affairs department of Zhongnan University of Economics and Law, and the dean and professor of the China (Hubei) Free Trade Zone Research Institute)
Source: "China Social Sciences Daily" April 10, 2024 Issue 2869 Author: Qian Xuefeng