Modest, if uneven, export growth is just about the only bright spot in China’s economic picture these days.
The improvement in overseas sales might take the edge off the worst aspects of the economy and move overall measures in the direction of Beijing’s target growth, but this is not the kind of support China needs. It is neither a long-run solution nor what Beijing is looking for. It risks distracting policymakers from what they must do.
On the surface, the figures look encouraging. After months of decline, China’s overall export volumes picked up 1.5 percent during the first three months of the year and gained a little more in April, the most recent period for which complete data are available. In value terms, the growth through March amounted to 4.4 percent. This four-month gain, however, disguises some less encouraging patterns. The entire advance occurred in January. The value of exports fell on balance between February and April, so that April exports were 7 percent below the January levels. This monthly pattern leaves room to doubt how much the export picture has improved.
Also raising questions about the durability of this improvement are patterns of buying reported by China’s major trading partners. The Census Bureau of the U.S. Department of Commerce reports, for instance, that American imports of Chinese goods in March, the most recent month for which data are available, were 26 percent lower than only six months ago. The European Commission reports that European Union (EU) imports from China for 2023, the most recent period for which complete data are available, were 18 percent lower than in 2022. In 2023, the figure for Japan was 11 percent lower than in the prior year.
Data comparisons of this sort seldom agree without anyone being more correct than another. Still, the picture strongly suggests that the export improvement in China is neither as strong nor as secure as it appears on the surface.
Even less encouraging are the probable reasons for any improvement in exports. If a surge has indeed occurred, it is likely to have come from a pricing edge generated by the combination of yuan depreciation on foreign exchange markets and China’s tendency toward deflation.
According to calculations done recently by The Wall Street Journal, the combined effect of both these trends has brought down the cost of Chinese goods on global markets some 14 percent from where they were two years ago. According to the report that accompanied these calculations, this price advantage has served as a kind of “rocket fuel” for Chinese exports.
But for all this, it should be apparent from the data quoted above that the price advantage has yet to move the American, European, and Japanese businesses away from their ongoing efforts to diversify sourcing away from China.
Aside from the reason to doubt whether this recent price advantage is actually serving as “rocket fuel,” there is good reason to doubt whether this kind of help is what China wants or needs. Because simpler items, where matters of quality and technology are less significant, are most sensitive to pricing, the edge that China has acquired will pull the economy’s emphasis toward just these sorts of simple products.
In other words, it will take China back to its less-developed past when it was the cheapest place to source simple goods like clothing, shoes, and toys. No doubt, this is why China’s export gains have occurred at the expense of emerging Asian economies. But it is just this sort of economic underpinning that China strives to move beyond and toward more sophisticated, high-value products or an export dependence altogether. This step beyond is what the International Monetary Fund has recommended for China, and Beijing holds out as a long-term goal.
Even if China accepts such a retrograde “solution” for its economy, it is not apparent how long the ongoing currency depreciation and deflation will persist, as it would have to in order to sustain this kind of export growth. However, as it is, this is neither the direction China needs to go nor should go in its efforts to restore prosperity to its economy. It is not an answer to the nation’s huge economic problems.
