China’s unexpectedly poor export performance as revealed on Tuesday is still largely down to wider economic headwinds. But underlying trade and investment trends point to an unmistakable long-term drift in commercial ties with the West.
Official data showed a 14.5 percent drop in July exports amid weak consumer demand in the world markets served by China – the fastest decline since the pandemic hit in 2020.
Lower imports meanwhile highlighted the lacklustre domestic Chinese picture.
For now, such cyclical factors outweigh any impact of calls by Western governments for companies to “de-risk” supply chains as a new era of distrust prompts the United States and Europe to cut trade reliance in strategic sectors with China.
But the longer-term direction of travel emerges more clearly as you pan out from the monthly trade headline.
Take foreign direct investment – the more forward-looking clue as to where commercial ties between countries are heading.
Foreign investment into China fell to around 0.4 percent of output by the end of June compared to an average of 1.6 percent for the five years before the pandemic – a 67 percent real decline over the period to the lowest level since records began 25 years ago.
“We would expect that to recover with the reopening but that really hasn’t been the case,” said Louise Loo, senior economist with Oxford Economics.
“That is more of a geopolitical story because of the regulatory environment, because of what is happening on the supply chain side,” she added of regulatory crackdowns on some sectors that have unnerved potential investors.
Some, meanwhile, point to the fact that US -China trade – exports and imports of goods combined – hit a record $690 billion last year as evidence that the reality does not match the frosty political rhetoric.
But Stephen Roach, senior fellow at Yale Law School’s Paul Tsai China Center, noted that such tallies were expressed in dollars unadjusted for surging inflation and came at a time when overall output was dragging many indicators higher.
In fact, he calculated, US-China bilateral trade in goods and services in real terms fell to 3 percent of US output in 2022 from a peak of 3.7 percent in 2014 – a decline of about a fifth.
“While this is a far cry from full decoupling … it certainly qualifies as a meaningful step in that direction,” he wrote in a column last month. – Reuters
