China’s Export Dependency on Western Demand Continues to be Significant
In recent months, China’s export growth has been stagnant, raising concerns about the country’s dependency on Western demand. In March, China’s exports declined by 7.5 percent year-over-year, offsetting the 7.1 percent gain in February and resulting in almost no growth over the two months. This trend has been consistent since late 2022, indicating a prolonged period of stagnation in China’s export sector.
The global trade trend has also experienced a contraction, with trade growth peaking in early 2022 and entering a downturn from mid-2023 until the first quarter of this year. While it is difficult to pinpoint the exact causes of this trend due to the relatively short time frame, two reasons can be hypothesized. Firstly, high global inflation has led to a decrease in both domestic and external demand. Secondly, geopolitical tension and regional conflicts have disrupted trade links, both physically and diplomatically.
This trend poses a challenge to China’s “world factory” campaign, as the country has traditionally focused on supplying cheap products rather than demanding high-value ones. A decade ago, there was potential for China and other BRICs countries to build a closed supply-demand loop. However, Russia’s invasion of Crimea in 2014 and China’s Belt and Road initiative shattered this dream and alerted the West to their ambitions.
The chart depicting China’s exports in 12-month moving sum amounts by the top eight partners sheds light on China’s reliance on Western support. The United States is the largest partner, followed by Hong Kong. However, Hong Kong mainly re-exports goods for China, so its impact can be disregarded. Japan, Korea, Vietnam, India, Russia, Germany, and the Netherlands are also important partners. Among these, only Vietnam and Russia can be considered pro-China, while the others are Western allies or “friends of America.”
While currently, it appears that only the United States has been reducing imports from China, the potential threat to China’s exports could be significant if other partners are forced to take sides. In 2023, China’s total exports amounted to US$3.4 trillion, with the top eight partners accounting for nearly half of this figure. The influence of the United States on China’s exports is substantial, and China’s hard style of trade negotiation could lead to a detrimental crash.
China’s export dependency on Western demand is a significant concern for the country’s economy. As geopolitical tensions and conflicts persist, and trade links continue to be disrupted, China may need to reassess its export strategy and seek new markets to sustain its export growth. The future of China’s exports hinges on its ability to diversify its trade partners and reduce its reliance on Western demand.
