China’s Trade Evolution: Past, Present, and Future

Posted on May 16, 2023

Last week, General Administration of Customs of China released the data for April 2023, and I was rather shocked by the results. So lets have a look at the data and what it implies.

In April 2023, China’s exports reached 2.02 trillion yuan, an increase of 16.8%, while imports were 1.41 trillion yuan, a decrease of 0.8%. The growth rate of import and export volume exhibited a massive disparity, which directly led to China’s trade surplus skyrocketing to 618.44 billion yuan in April, a whopping increase of 96.5% compared to April 2022.

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Officiial April 2023 import and export data

If we look at the first 4 months data in 2023, China’s exports were 6.97 trillion yuan, an increase of 10.3%, imports were 5.61 trillion yuan, an increase of 5%, and the trade surplus was 1.36 trillion yuan, an increase of 39.2%. If calculated in US dollars, the surplus is $212.93 billion.

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Officiial first 4 months import and export data

Why was I shocked by this data? In recent months, after the end of COVID pandemic, people on social media (in China) were saying it is difficult to get export orders. At the Canton Fair, I heard people saying that there were less buyers from Europe and America, especially not much buyersare placing orders. Conversely, there were more customers from Asia, Africa, and Latin America than before. In the past few months, there have been many voices saying that exports are going to be challenging in the years to come and the overall economic situation is not promising. However, when we see the actual export growth in the first four months, the story is completely different. The first four months of 2022 marked an explosion in China’s trade surplus, with a surplus of over $200 billion gained in just four months.

In the past Chinese joke that we are trading a hundred million shirts for one airplane. However, that is no longer the case. From January to April 2023, the export of labor-intensive products was 1.31 trillion yuan, only accounting for 17.1% of the total export value.

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Official data for labor-intensive products

This also resonates to my experience 2 months ago, when I visited a Hotel related fair in Shanghai with my friend, my friend was surprised by the rather empty hall for essential hotel amenities like tooth brushes and bathrobes and so on.

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Hotel & Shop plus Shanghai

But when we visited the Hall for Robots used in Hotels, it was completely full.

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Hotel & Shop plus Shanghai

Among China’s exported products, the export of electronics and machinery increased by 10.5%, amounting to 4.44 trillion yuan, accounting for 57.9% of the total export value, making it the absolute majority.

While China’s Automotive exports surged 120.3%, imports plummeted 28.9%. This dynamic has dramatically expanded China’s trade surplus in the automotive sector. For a full 40 years, China has been a trade deficit country in the automotive industry, constantly using foreign exchange to purchase foreign cars, with imports far exceeding exports.

But in 2022, China achieved a trade surplus in the automotive sector for the first time, earning a significant 380 billion yuan surplus for the whole year. This is the first time in 40 years that Chinese made money in automotive trade. The automotive sector is poised to quickly become a major contributor to China’s foreign exchange earnings.

The second largest decrease in imports among electronics and machinery products is integrated circuits largely due to the ban from US. Despite the negative impacts on companies like Huawei and Alibaba, China’s production capacity is rapidly increasing, especially in the fields of low- and middle-end chips (above 14nm chips) and a large amount of domestic substitution has led to a continuous decline in import demand.

In 2022, China’s import of integrated circuits decreased by 15.3% year-on-year. In the first 4 months of 2023, China’s import of integrated circuits decreased by 21.1% year-on-year.

Now we looked into the different industries lets take South Korea as an example as how a country with huge surplus with China turned into huge deficit. From September 1994 to April 2022, South Korea achieved a continuous trade surplus with China for 28 years, with a total surplus of several hundred billion US dollars mainly relying on automotives, mobile phones, and integrated circuits. In April 2023, South Korea’s exports to China fell by 26.5% year-on-year, marking the 11th consecutive month of decline.

In recent years, South Korea’s mobile phones are no longer favorites in China, Samsung is being replaced by Huawei, Xiaomi and Oppo. South Korean cars were losing market share dramatically, in 2012 10% of the cars sold in China were Kia & Hyundai, today they count for only 1.6% in the market. South Korean integrated circuits now are also devastating in the market. Semiconductor exports fell by 41%, marking the ninth consecutive month of decline. As a result of all combined, South Korea’s trade with China has directly shifted from a huge surplus to a huge deficit, and there is no sign of reversal in sight.

When we look at the trade per region. In the first 4 months of 2023, Association of Southeast Asian Nations (ASEAN) is China’s largest trading partner, accounting for 15.7% of China’s trade value. Exports to ASEAN amounted to 1.27 trillion yuan, an increase of 24.1%. Imports from ASEAN were 820 billion yuan, an increase of 1.1%. The trade surplus with ASEAN increased to 451.5 billion yuan.

EU is China’s second largest trading partner, accounting for 13.5%. Exports to the EU were 1.17 trillion yuan, an increase of 3.2%. Imports from the EU were 631.3 billion yuan, an increase of 5.9%. The trade surplus with the EU increased to 541.4 billion yuan.

The United States is China’s third largest trading partner, accounting for 11.2%. Exports to the United States were 1.09 trillion yuan, a decrease of 7.5%. Imports from the United States were 410 billion yuan, an increase of 5.8%. The trade surplus with the US decreased to 676.8 billion yuan.

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Official data per region

Now we looked at the past and present, but what about the future?

One industry that falls under the radar is large commercial aircrafts. Today there are only two main large commercial aircraft manufacturers that dominate the market: Airbus and Boeing. Commercial Aircraft Corporation of China, or COMAC has been working on it for almost 2 decades and the first commercial aircraft is called C919, a narrow-body twinjet airliner intended to compete directly with the Airbus A320 and Boeing 737 families of aircraft.

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C919 was publicly announced in 2010, first aircraft was built in 2015 and was granted a certificate of airworthiness in 2022. Although developed completely in China the aircraft still requires 40% of the parts from imports including the engine LEAP-X1C manufactured by CFM International, a 50–50 joint venture between American GE Aviation and French Safran Aircraft Engines.

In 2023 the first aircraft was handed over to China Eastern Airlines and was planned for commercial use after the 100 hour verification flight. However according to media reports, the C919 large aircraft encountered some technical issues after completing 100 hours of validation flights. So it has not been in commercial use today, but with continuous advancements and improvements chances are very high that C919 will start commercial use in 2023. In fact, the C919 aircraft has already received a thousand global orders (mostly within China).

In the past Chinese were selling toys and clothes, today Chinese are selling electronics, cars and trains, in the future Chinese will sell chips and planes, and maybe even movies? How many years will it take?


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