Opinion Leaders 丨China Finance Forty Forum
Author: Zhu He
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Is the recent export performance good or bad?
Since May, the PMI new export order index has continued to decline, but the total export volume has maintained rapid growth, especially in the past two months. The divergence between the two has confused the market.
Zhu He, deputy director of the research department and young researcher of the China Finance Forty Forum, believes that the bright performance of exports since July actually contains a considerable degree of price factors, and this mainly comes from the increase in costs caused by rising production costs and freight costs, rather than rising demand. The inflection point in the size of this round of exports may have appeared in June, but it was covered up by price factors.
He split the export growth rate of 6512 types of products in the past 6 months from the two dimensions of volume and price, and calculated that 15 percentage points of the 25% export growth rate in August actually came from the simple product price increase. The explanatory power of the price effect suddenly increased in July, and the explanatory power of the price effect on the growth rate of exports exceeded 60% in July and August.
This export expansion, driven primarily by price rather than scale, means that for micro-enterprises, there has been no substantial improvement in turnover, and even profits may be compressed, as the increase in production costs may not be fully passed on to terminal prices.
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Since May, there has been a significant divergence between the performance of new export orders and total exports, and the PMI new export order index has continued to decline, but the growth rate of export amounts has maintained a very high resilience, and the divergence between the two has confused the market.
Recently, the author did some interviews and surveys, and some export enterprises in the Yangtze River Delta and the Pearl River Delta said that "the past few months have not been comfortable", which is obviously different from the second half of last year.
There is a clear divergence between macro indicators and micro perceptions.
We can't help but ask, is the exit good or bad? If so, why are new export orders for PMI declining and the sense of gain of exporting enterprises declining? If not, why is the export growth rate still so high?
There are two basic factors for export expansion: volume and price
The expansion of the export amount is nothing more than two factors, volume and price. The quantity of things exported is more, or the export is more expensive, or both.
In the case of good demand, the volume and price will often rise at the same time.
But when the demand is not good, if the production cost is high enough, the price is difficult to be beaten down, so logically it can also maintain a certain degree of export amount growth. In other words, if the price is raised high for some reason while demand remains stable, then the simple change in price can lead to an increase in the amount of exports.
What is the significance of distinguishing between volume prices?
For the manufacturing industry, the most important thing is the flow, followed by profits, and the main thing that ensures the stability of the flow is the scale, not the unit price.
Consider a situation where rising production costs lead to an increase in export prices, which in turn is reflected in an expansion of export amounts.
In this case, the turnover of micro-enterprises has not been substantially improved, because the scale of production reflected in the order has not changed; at the same time, its profits may be compressed, because the increase in production costs may not be able to pass on to the terminal price in its entirety. At this time, there is a contrast between the expansion of export scale and the actual feelings of enterprises, that is, export expansion has not brought about the improvement of the operation of export enterprises.
Next, this article will follow the above ideas, decompose the year-on-year growth rate of export amount into price effects and quantitative effects, and explore the truth of current exports.
Introduction to the idea of splitting
The main difficulty in splitting the export growth rate from the two dimensions of volume and price is that the heterogeneity between commodities is too strong, and there is no unified indicator to measure the number of exports. Therefore, this article uses the "bottom-up" idea, starting from the split of single-class products, and finally completes the non-residual split of the overall export growth rate.
First of all, for a single product, on the basis of the average unit price of known export commodities, the growth rate of export amount can be broken down into three parts according to the following formula:
Growth rate of export value = a. Export volume growth rate +b. Export unit price growth rate +c. Export volume growth rate * export unit price growth rate year-on-year
Among them, the first part is recorded as quantitative effect, the second part is the price effect, and the third part is the volume-price comprehensive effect. Under normal circumstances, the last item is an order of magnitude smaller and can be omitted in principle. However, in the stage of major adjustment of the volume price, the last item will become very important, and it is necessary to distinguish whether this effect mainly comes from the change in price or the change in quantity.
Then, the proportion of the export value of N kinds of products in the same period last year to the total export amount, multiplied by the quantitative effect, the price effect and the volume-price comprehensive effect, respectively, can complete a non-residual split of the growth rate of the export amount.
Take steel as an example to briefly illustrate the calculation idea. In August 2021, the export volume of steel products was 5.05 million tons, a year-on-year growth rate of 37.2%. The export value was 7.29 billion US dollars, a year-on-year growth rate of 119%. Then, using the data of 2021 and August 2020, the unit price of steel is calculated year-on-year, about 60%. It can be seen that at least 50% of the year-on-year growth rate of steel exports in August came from simple price increases, and 30% came from the increase in quantity. Since the volume price increase is relatively large, the volume price effect can also explain the expansion of export scale by 15%.
Further, in August 2020, the proportion of steel exports to the total export amount was 1.41%, which is not large, but due to the high growth rate, only steel exports in August 2021 drove the overall export growth rate of 1.68 percentage points. Further, simply due to the rise in steel prices, it has driven the national export by 0.84 percentage points. If some of the comprehensive effects of volume prices are taken into account, then the single factor of steel prices alone can explain 1 percentage point of the 25 percentage points of the year-on-year growth rate of national exports in August, and the explanation is 4%.
Data sources and calculation results
This paper is based on the detailed export data of products under the 8-digit code published by the General Administration of Customs (mainly including the export amount and export quantity of such varieties), and excludes a small number of products with missing data, and finally screens out 6512 types of products. The sum of these 6512 types of products accounts for more than 98% of the total export amount, and as shown in Figure 1, the error between the export growth rate and the actual overall export growth rate is very small.
Figure 1 Comparison of export growth rate of 6512 categories of products with the overall export growth rate
Figure 2 Variations of the three effects
As the chart shows, since March 2021, the price effect has gradually improved, with a significant increase in July and August, while the quantitative effect has shown the opposite change.
According to estimates, 15 percentage points of the 25% export growth rate in August actually came from simple product price increases. From the perspective of the explanatory power of the growth rate (effect/actual growth rate), the explanatory power of the price effect increased suddenly in July, and the price effect on the export growth rate in July and August exceeded 60%.
conclusion
The above calculation results show that the inflection point of the scale of this round of exports may have appeared in June, but it was covered up by price factors. The rate of decay of the quantitative effect after June is very obvious, indicating that the price effect does not come from strong demand, but from a rapid increase in cost. This coincides with the rapid rise in upstream product prices year-to-date.
And even if the price of upstream products is rising, because the amount has not increased, it is ultimately reflected in the profit level, which is not satisfactory. As in the example given above, steel prices rose so much, but the steel industry's profits grew by only 10% year-on-year in July, which is a large part of the increase in steel prices from the cost side. Steel still belongs to the midstream industry, and the situation in the downstream industry is probably more severe.
In addition to the increase in production costs, freight rates may also play an important role in this. Whether the freight is reflected in the export amount depends on whether the foreign importer finds the freight forwarder himself or directly calls the domestic exporter. We don't know exactly how much freight can be reflected in the final export amount, but even if the freight rate accounts for only 2% of the export amount (which may be significantly lower), because the freight rate has increased by 2-3 times over the same period last year, the pull effect on the overall export amount is not easy to underestimate. After all, such an unusual spike in freight rates as this year has not occurred in the past decade.
In summary, the bright performance of exports since July actually contains a considerable degree of price factors, and this part of the price factor is mainly from the increase in costs, rather than the price increase driven by demand. Further, some of the increased costs come from the rise in production costs and partly from the rise in freight costs, and these two are closely related to the supply disturbances they face, and are also not factors that can be explained on the demand side.