Commodity exports fell sharply in March, why did not continue the good start trend of January-February

Executive Summary:

The General Administration of Customs announced that the value of goods exports fell by 11.4% in March and 1.7% in the first quarter. Exports of major commodities and exports to major trading partners mostly showed a downward trend in March. Why did exports not continue the good start trend of January and February in March? In response to the downward trend in exports, we need to pay special attention to three things.

1. The General Administration of Customs announced that the export value of goods fell by 11.4% in March and 1.7% in the first quarter.

The export situation in March changed abruptly, from a good start in January and February, to a sharp decline in the downward trend.

China's merchandise exports in March 2024 were US$279.7 billion, a year-on-year decline of 7.5% according to the General Administration of Customs' Commodity Import and Export Express data released on April 12. However, compared with the March express report of 315.6 billion US dollars released last year, it fell sharply by 11.4% year-on-year.

In the first quarter of 2024, the export value of goods was 807.5 billion US dollars, the General Administration of Customs said that it increased by 1.5% year-on-year, but if compared with the express report of 821.8 billion US dollars released from January to March last year, it decreased by 1.7% year-on-year.

In March, we imported US$221.1 billion in goods, down 2.8% from the US$227.4 billion reported in March 2023. Imports in the first quarter were US$623.8 billion, a slight increase of 1.1% compared with US$617.1 billion in March 2023.

The balance between imports and exports of goods in March was 58.55 billion US dollars, down 33.6% year-on-year. The surplus in imports and exports of goods in the first quarter was US$183.66 billion, down 10.3% year-on-year.

The $279.7 billion value of merchandise exports in March was only slightly better than the second lowest of $274.3 billion in October 2023 since May 2022 (excluding the consolidated data from January to February). It reflects the current downturn and contraction of the mainland's export trade, as well as the contraction of the demand for Chinese-made goods in the international market, as well as the fact that the manufacturing capacity is not only in excess at home, but also in the external market.

2. Exports of major commodities and exports to major trading partners mostly showed a downward trend in March.

In terms of exports to major trading partners, exports to other major markets declined to varying degrees in March, except for Russia, India, Canada, Latin America and Africa, which increased by 5.5 percent, 3 percent, 7.5 percent, 8.2 percent and 2.8 percent respectively.

The markets with the highest export value were ASEAN, the European Union and the United States, with exports of US$52.9 billion, US$39 billion and US$36.7 billion respectively, down 1.4%, 7.7% and 7.1% year-on-year, respectively.

Merchandise imports from these three regions were US$32 billion, US$23.3 billion and US$13.8 billion, respectively, down 6.3 percent, 14.9 percent and 15.9 percent year-on-year, respectively.

Exports to Japan and South Korea fell by 8% and 2.2%, respectively, and exports to the United Kingdom, Australia and New Zealand fell by 6.1%, 5.1% and 10.7%, respectively.

Overall, our exports to advanced economies have declined markedly, while exports to the South (developing and poor) have continued to grow, but the growth rate has fallen from the high rate of previous years to the medium to low rate.

In March, exports of all other categories of goods fell in terms of US dollar terms, with the exception of oil product exports, which rose sharply by 11.6 percent. Among them, fertilizers, ceramics and rare earths fell by 47.3%, 36.8% and 1.3% respectively. Exports of traditional industrial products also fell deeply, of which shoes and boots fell by 31%, bags fell by 27.7%, toys fell by 24.7%, steel, clothing and furniture fell by 24.1%, 22.6% and 12.3% respectively. Exports of mechanical and electrical products and high-tech products, which we actively expanded and upgraded, decreased by 8.8% and 2.7% respectively.

Among the mechanical and electrical products, the export value of general mechanical and electrical products decreased by 13.2%, household appliances decreased by 4.6%, and medical devices decreased by 11.4%. Mobile phone recovery increased by 1.7%,

In March this year, the value of automobile exports increased by 28.4%. Exports of power batteries increased by 33.7% year-on-year, and the export value of photovoltaic products has not been disclosed. However, from January to February 2024, the export of photovoltaic products was 6.336 billion US dollars, a year-on-year decrease of 27.95%. The export of photovoltaic products in the new three samples has shrunk very sharply, and the overcapacity is more serious.

3. Why did exports not continue the good start trend from January to February?

Although the first two months of this year's merchandise exports changed the continuous downward trend in the second half of last year, and the export value denominated in US dollars increased by 7.3% year-on-year, the data of one or two months could not change the direction of trend change, so exports in March quickly returned to the downward trend line.

The downward trend of China's commodity exports is mainly determined by the de-risking of foreign investment by developed countries and the diversification of the supply chains of multinational companies.

In the 30 years from 1990 to 2019, China's merchandise exports soared from US$82.1 billion to US$2.5 trillion, an increase of 29.5 times, an annual increase of 12.06%. This is mainly due to the establishment of our reform and opening up policy and our accession to the WTO, and the rapid increase in foreign investment has brought more and more foreign-funded enterprises. The exports of Hong Kong, Macao, Taiwan and foreign-funded enterprises are the main force driving the rapid growth of our exports.

On the surface, many of our media have analyzed that the economic slowdown in Europe and the United States is the main reason for the decline in mainland exports. In fact, the European and American economies are not so bad, at least the current US economy is still strong, and European demand is also good, because of strong demand, inflation in these two major markets still exceeds the regulatory targets of the Federal Reserve and the European Central Bank, so Europe and the United States have postponed interest rate cut expectations.

The real reason is that in the past two years, due to the great changes in the pattern of foreign relations, developed countries have promoted the de-risking of international investment and the diversification of the supply chain of multinational enterprises to Southeast Asia, India, Mexico and other places, which has led to a significant decline in our foreign investment, and the increase in foreign investment led by Chinese enterprises in the supply chain of multinational companies and the continuous relocation of production lines. This trend has led to a shift in our foreign orders.

Fourth, in response to the downward trend of exports, we need to pay special attention to three things.

It is important to note that this trend is clearly only beginning for 1-2 years and is likely to continue for 5-10 years in the future. This means that the highlight moment of the mainland's export trade is likely to have passed, and the era of high growth in China's manufacturing industry and high economic growth driven by high growth in foreign trade exports is gone forever.

Based on this trend, we need to pay special attention to three things:

The first is how to stimulate domestic demand.

It should be said that the government has long been aware of the problem of insufficient domestic demand. However, the policies adopted by the National Development and Reform Commission and the Ministry of Finance to stimulate domestic demand have always been limited to the surface and have not touched the core of the problem. How to increase the income of workers and increase the proportion of residents' income in GDP, how to improve the level of social security, and how to narrow the gap between people inside and outside the social security system are the core policies to improve demand and stimulate consumption.

The second is to face up to overcapacity.

Recently, the United States has been preaching China's overcapacity, especially the important task of Treasury Secretary Yellen's visit to China is to discuss with the mainland the overcapacity of emerging industries such as new energy vehicles, lithium batteries, and clean energy, and the proportion of the "new three" in China's total foreign exports is increasing rapidly.

Our mainstream view on this is that this means that once the United States further increases trade protection measures on the grounds of overcapacity, curbs the export momentum of the "new three", and intensifies the "decoupling and chain breaking", it will have a more serious adverse impact on the mainland's future exports.

In fact, this is true not only of the United States, but also of the European Union. Last month, the European Union launched an investigation into our new energy vehicles. Recently, the European Union said it would investigate subsidies received by Chinese wind turbine suppliers shipped to its country, and the Ministry of Foreign Affairs also expressed concern about the alleged discriminatory measures taken by the EU against its companies.

Saburo wants to say that in fact, in 2019, Saburo began to argue in a number of economic analysis articles that the income growth of China's residential sector has been lower than the growth of the national economy for a long time, and the growth of investment has been higher than the growth of GDP for a long time, which has led to weak demand and oversupply caused by an increasingly serious lack of purchasing power. Economist Professor Zhang Weiying warned more than a decade ago that China's industrial policies often lead to overcapacity in key government-supported industries.

In March, the national producer price (PPI) fell by 2.8 percent year-on-year, an increase of 0.1 percentage points from the previous month, and decreased by 0.1 percent month-on-month, 0.1 percentage point narrower than the previous month. This is the 14th consecutive month of year-on-year decline in PPI and the fifth consecutive month of month-on-month decline. Producer prices continue to fall, and there has long been a signal of "overcapacity".

Our domestic demand is insufficient, oversupply, and overcapacity in some key supported industries are objective facts, and we cannot deny this fact just because the Americans are mentioning this matter now. Because only by facing up to the problem can we have the motivation to solve it.

The third is to solve the problem of overcapacity through new reform and opening up.

First, we should optimize our industrial policy in keeping pace with the times, try to narrow the scope of state support for industrial policy, and also change the way we support key industries, so as to avoid falling into a vicious circle of state support, rushing to the top, overcapacity, falling prices, and enterprise closure.

Second, we should put economic interests above the highest diplomatic norms, carefully structure our foreign relations, and avoid export difficulties caused by diplomatic priorities that conflict with our export market priorities. This requires us to minimize the impact of "decoupling and chain breaking" through diplomatic mediation.

Third, we should start the second large-scale reform and opening up as soon as possible. At present, the phenomenon of economic exchanges in circles on the international market is widespread, and joining various free trade agreements and investment agreements is the main way to attract investment and increase exports. However, based on the doubts of developed countries about our commitment to join the WTO, they have added some preconditions to some new trade circles, such as the CPTPP's market-oriented requirements for member countries are very clear and high, and according to our current policy, they cannot meet their thresholds.

At present, profound changes have taken place in the international environment, and the development of the world economy is facing many severe challenges, all of which will bring greater tests to the mainland's foreign trade. Only by launching the second large-scale reform and opening up as soon as possible can we promote the sustained improvement of the mainland's economic fundamentals and consolidate the comprehensive competitive advantage of foreign trade.

[Author: Xu Sanlang]