China's Exports Improvement: Neither What The Economy Wants Nor Needs - Forbes

A rebound in exports during this year’s first quarter offers just about the only bright spot in China’s economic picture these days. The improvement might take the edge off the worst economic disappointments of 2024, but this kind of support certainly offers no long-run answer. Fundamentally, this source of strength is bad for China. Indeed, it risks distracting policy makers from the economic emphases they must cultivate.

On the surface the data look encouraging. After months of decline, China’s overall export volumes picked up 1.5% during the first three months of the year, the most recent period for which complete data are available. Growth in value terms came in at 4.4%. This quarterly gain, however, disguises the fact that the entire advance occurred in January. In February and March, the direction was down from the January high so that March exports were 9 percent below the January levels. This monthly pattern leaves room to doubt how much the quarterly pattern signals an improved export picture.

Patterns of buying reported by China’s major trading partners also raise questions about the durability of this improvement. The U.S. Department of Commerce, for instance, reports that American imports of Chinese goods in March, the most recent month for which data are available, were 26% 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% lower than in 2022. For Japan, the figure for the same period was 11% lower than in the prior year. Data comparisons of this sort seldom agree without any one more correct than another, but the picture strongly suggests that the export improvement in China is neither as strong nor as secure as appears on the surface.

Probable reasons for any improvement in exports detract still more from any enthusiasm they might engender. If the 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% 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 reason to doubt whether this recent price advantage offers “rocket fuel,” there is good reason to doubt whether this kind of help is what China wants or needs. After all, China has aimed to move its economy toward higher-value products, whereas it is simpler items that China wants to leave behind that are most sensitive to pricing. The recent pricing edge, if it is working, will tend to pull Chinese production away from where China wants to go and back toward the country’s less developed past when it specialized in simple products such as clothing, shoes, and toys. No doubt this pull is why China’s export gains have occurred at the expense of emerging Asian economies. it might produce good numbers but it interferes with the next step in Chinese economic development, a step that International Monetary Fund (IMF) has long recommended for China and that Beijing holds out as the country’s long-term goal.

Even if China were to accept such a retrograde “solution” for its economy, it is not apparent that the ongoing currency depreciation and deflation will go on indefinitely, as it must to sustain this kind of export growth. More significantly, this is neither the direction China needs to go nor should go in its efforts to restore prosperity to its economy. It is definitely not an answer for the nation’s huge economic problems.

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China's Exports Improvement: Neither What The Economy Wants Nor Needs - Forbes
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