MNI INTERVIEW: China EM Trade To Rise, Despite Western De-risking

Robust trade with emerging markets will support China’s imports and exports in 2024, with foreign trade expected to rise marginally over 2023's softer levels and despite western countries’ continued efforts to “de-risk” away from Chinese-made goods, a prominent trade advisor told MNI in an interview.

The worldwide restock will continue, a soft landing of the U.S economy will likely drag up global goods trade and warming cross-border direct investment will boost demand, said Zhao Jinping, senior research fellow at Chongyang Institute of Financial Studies of Renmin University of China. (See MNI INTERVIEW: China Trade To Hit CNY44-45 Trillion In 2024）

According to the General Administration of Customs, China experienced its weakest foreign trade levels since 2016 last year, with exports down 4.6% y/y in dollar terms and imports 5.5% lower y/y. However, the trade surplus extended to USD823 billion thanks to the soft imports, lower than 2022’s record USD851 billion.

But trade still faces headwinds due to the upcoming U.S. election and geopolitical conflicts that will impact investor and business sentiment, said Zhao, former director-general of the Research Department of Foreign Economic Relations at the Development Research Center of the State Council, noting the ongoing Red Sea conflict will further pressure shipping cost. (See MNI INTERVIEW: China Export Container Shortage To Improve）

Sino-U.S. trade relations will continue to face pressure irrespective of which candidate wins the election, however, former President Donald Trump will escalate the trade war should he regain the White House, Zhao added. But relations with other western countries, Japan and South Korea may improve should Trump win, he predicted.

China’s exports should remain healthy in 2024, while soft domestic demand and international export controls will pressure imports, he argued.

STRUCTURAL CHANGES

De-risking moves by some western countries aimed at reducing reliance on China is shifting the makeup of the country’s trade partners, elevating the importance of emerging markets, Zhao said.

China’s trade volume with BRICS members jumped over 60% in 2023 from 2019 levels, and this will increase further following January's ascension of Egypt, Iran, Saudi Arabia and the United Arab Emirates, he added, noting trade with Shanghai Cooperation Organization members also surged last year. The growth of trade with African countries, ASEAN and Regional Comprehensive Economic Partnership (RCEP) members also recorded a faster-than-average increase compared to other trading partners in 2023, he continued.

Emerging markets, however, cannot offset U.S and EU reductions, he admitted. Export controls, particularly those targeting electronic communication equipment and precision instruments, had also seriously impacted imports, Zhao noted.

SOUTH KOREA DATA

South Korea ran its first trade deficit with China since 1992 last year at USD18 billion, according to the Korea International Trade Association. The shortfall was largely driven by an 18.8% decline in exports to China. (See MNI INTERVIEW: S.Korea H2 Export Outlook Hit By Slowing China)

Zhao noted the reduction of semiconductor exports was largely to blame. South Korean trade data has therefore become a less precise indicator of China’s trade and economic performance considering the country has shifted focus of its supply chain, he argued.

South Korean exports have typically served as proxy barometer of international trade with China due to the country’s role in the global microchip, display and refined-oil markets, which straddle supply lines.