At the beginning of the outbreak of the new crown epidemic, the overall domestic view on exports was pessimistic, because when people judge the future trend of an event, it is easy to simply extrapolate from their own experience. Strict quarantine measures were implemented in the country at that time, and terminal demand dropped sharply. The mainstream view was that the same would happen overseas, so China’s exports were not optimistic. After the orderly resumption of work and production in China in March 2020, many people said that work would have to be suspended again later because there is no overseas market and products cannot be sold after they are produced.
But in fact, China’s exports have been very strong after the new crown epidemic. The year-on-year growth rate of China’s exports in US dollars is 0.5% in 2019, 3.6% in 2020, and 32.3% in January-October 2021. The November 2021 manufacturing PMI export index issued by the National Bureau of Statistics is 48.5, which has rebounded for two consecutive months. Therefore, there is a high probability that China’s exports in November will maintain a relatively high growth rate.
China is in the process of transforming from an external cycle to a dual cycle, and exports still play an extremely important role. The export boom has a positive impact on China’s economy in many ways: first, the economy will soon emerge from the impact of the epidemic, which needless to say; second, the foreign trade-related employment population will reach 180 million in 2020, and exports are good. The job market has stabilized. The urban surveyed unemployment rate in January of this year was 4.9%, which was lower than the 5.2% before the epidemic (December 2019); third, the boom in exports has driven manufacturing-related sub-sectors to increase fixed asset investment . Compared with the same period in 2019, the manufacturing investment increased by 1.3 trillion from January to October this year, of which the three industries of computer communication electronic equipment, medicine, and special equipment contributed 72.3% of the increase, and they all directly benefited from high exports. Prosperity; Fourth, after the economy recovers quickly, policies can focus on more mid- to long-term issues, such as high-pressure management of local debt risks, promoting green economic transformation, and insisting on “housing and housing not speculating.”
Of course, high export growth also has some adverse effects. One is that China’s exports are dominated by industrial products, and the energy consumption per unit GDP created by industry is significantly higher than that of the service industry. The high export growth rate was an important reason for the slow completion of the dual energy consumption control target in the first half of this year. In the third quarter, the policy began to increase, and the scope of power cuts was expanded. A certain capital city in the northeast even cut off the traffic lights.
Second, the high export boom has brought a high trade surplus. From January to October this year, China’s trade surplus reached 510.6 billion U.S. dollars, the highest in the same period in history. This makes the renminbi continue to appreciate strongly despite the strengthening of the US dollar index. Some export companies reported that their export profits were eroded due to the appreciation of the renminbi, and they took more orders but did not make more money.
Based on the above analysis, it can be found that the future export situation has important reference significance for us to judge the economy, policy, employment and exchange rate. The current mainstream view is that China’s export growth rate will drop significantly in 2022, and many people even look down on negative growth. Compared with these views, the author is a lot more optimistic, thinking that China’s exports are expected to maintain a double-digit year-on-year growth rate in 2022, and the probability of a cliff-like decline is extremely low.
The following analysis will be conducted from two perspectives of global trade volume and China’s export share.
Let’s first look at the growth of global trade volume. Comparing historical data, you will find that the global real GDP growth rate is highly correlated with the trend of the total trade growth rate. It is also easy to understand that the higher the economic growth rate, the faster the growth of production and income, and the greater the demand for imported raw materials and consumer goods from overseas. Among them, developed countries are the engine of global trade growth. As consumer countries, their import demand increases, which drives production in producing countries such as China, and in turn increases the import of raw materials to resource countries such as Australia and Brazil. After the epidemic, the United States, Europe, Japan and other countries and regions have implemented large-scale fiscal stimulus, and overseas consumer demand has surged, which has led to a rapid recovery in global trade.
According to the forecast of the International Monetary Fund in January 2021, the GDP growth rate of most developed countries will slow down in 2022, but the overall decline will be small. The International Monetary Fund predicts that the real GDP growth rates of the United Kingdom, France, the United States, Italy, Germany, and Japan in 2021 will be 6.8%, 6.3%, 6.0%, 5.8%, 3.1%, and 2.4%, respectively, and 5.0% in 2022. , 3.9%, 5.2%, 4.2%, 4.6%, 3.2%, the GDP growth rate of Germany and Japan will rebound. Taking the above six countries as a whole, the real GDP growth rates in 2021 and 2022 will be 5.3% and 4.7% respectively. Therefore, although the real GDP growth rate of the above six consumer countries slows down, which may suppress the pace of global trade expansion in 2022, because the economic growth of consumer countries is slowing down, the author believes that global trade is expected to continue to maintain high growth in 2022. Soon, the cake in the global export market will grow at a faster rate.
Let’s look at China’s export market share. After the epidemic, China’s production was the first to resume. The gap between developing countries other than China and developed countries is manifested in many aspects, especially in terms of vaccination. According to the statistics of Our World in Data website, as of December 4, 2021, the global average vaccination rate is 55% (full vaccination rate 44%, partial vaccination rate 11%), among which the vaccination rate in high-income countries is 74% (The full vaccination rate and the partial vaccination rate are 68% and 6%, respectively), compared to only 6% in low-income countries (both vaccination rates are 3%). Low vaccination rates in low- and middle-income countries have made them less able to withstand the impact of the epidemic, and their production has also suffered greater impact. The flow of orders to China, where production is the first to recover, is an important force in promoting China’s high export boom.
However, the return of orders from China is not an overnight thing, which has also been verified by the data. From January to May this year, China’s exports accounted for the share of global trade, an increase of 0.9% compared with the same period in 2019. In June-August this year, compared with the same period in 2019, the growth rate of China’s export market share further rose to 1.2 percentage points.
Looking forward to 2022, the author believes that China’s export market share will continue to be higher than before the epidemic due to the following reasons. If the overseas epidemic is out of control than expected, China’s export market share may increase further.
First, the global epidemic is still facing greater uncertainty. Although the global vaccination rate has been increasing in an orderly manner, the number of newly confirmed cases in the world is still observed in a cycle of 3-4 months. This November is at the beginning of the fourth round of rising period. There are many factors that cause periodic fluctuations in the number of newly confirmed cases, including the protection period of the existing new crown vaccine is mostly within half a year, and the virus has mutated (the cumulative number of confirmed new crowns worldwide has reached 270 million, and there are currently 25.5 million confirmed cases, a huge base. It means that the risk of virus mutation exists for a long time), and the anti-epidemic efforts of different countries are different. Today, with the deep integration of the world, the shortcomings of epidemic control are in the countries and regions with the weakest anti-epidemic capabilities. The recent emergence of the Omicron strain has caused panic in global capital markets. If a super mutant strain emerges in 2022, the recovery of overseas production will continue to be restricted, which will increase the import demand for Chinese goods.
Second, the safety of China’s industrial chain has been demonstrated during the epidemic, which will help Chinese companies increase their stickiness with overseas customers. Before the COVID-19 pandemic, the global layout of procurement and production, with the goal of maximizing profits, was particularly evident in multinational companies. However, after the outbreak of the new crown epidemic, many companies began to reflect on how to better balance profitability and safety, because once a problem occurs in a certain link of global procurement and production, the entire industrial chain will be affected. The most typical is the automotive industry. The epidemic in Southeast Asian countries has caused a global shortage of automotive chips. In 2021, global automotive production is expected to be reduced by more than 2% year-on-year.
As the only country certified by the United Nations to have all industrial categories, China has rapidly recovered industrial production thanks to its strong social mobilization capabilities during the epidemic, which is undoubtedly very attractive to many foreign companies. In 2020, China’s actual use of foreign direct investment increased by 6.2% year-on-year, higher than the 5.8% in 2019, and it further increased to 17.8% from January to October this year. For foreign companies, in addition to setting up factories in China to ensure the safety of the industrial chain, expanding imports from China is also an important option to maintain their own stable production.
Third, the new crown epidemic has given many opportunities for Chinese products to go global. China is a catching-up manufacturing country. In terms of key technology, product quality and brand value, China has a long-term gap with international giants. This has made many domestic and foreign customers think that some Chinese products are inferior to international well-known brands. But in fact, Chinese manufacturing is constantly upgrading. The author has investigated and learned that after more than ten years of hard work, a domestic manufacturer of CNC machine tools has been able to produce machine tools on the same level as international giants in terms of processing accuracy and stability, but the price is less than half of that of well-known international brands. And the after-sales service is better, such as arranging special personnel to assist customers in installation, on-site teaching and training, and setting up a 24-hour service hotline.
The new crown epidemic has allowed some domestic brands to emerge. Due to the long-standing inherent concepts formed before the epidemic, domestic and foreign customers prefer internationally well-known brands. However, after the outbreak of the epidemic, overseas production was restricted, and some customers were “forced” to buy Chinese products. The cost-effective advantage was demonstrated. Take laser equipment as an example. Compared with before the epidemic, the market share of domestic laser equipment in China has increased by 2%. The author believes that the same is true for many countries. The epidemic has increased their purchases of Chinese products. With the magic weapon of high cost performance, more Chinese-made products have formed stickiness with overseas customers.
In general, the growth of major developed economies will slow down in 2022, but the decline will be limited. Therefore, the overall plate of global trade will continue to expand rapidly. There are still great uncertainties about the overseas epidemic. After the epidemic, the safety of China’s industrial chain and the high cost-effectiveness of Chinese manufacturing will make China’s export share of the global market more likely to continue to be higher than before the epidemic in 2022. If the overseas epidemic goes out of control, China’s export market share may further increase. Therefore, it is expected that China’s exports may still maintain a double-digit growth rate in 2022, which should be viewed with optimism. This means that the export industry chain will continue to play an important role in economic growth and employment stabilization, and the risk of RMB depreciation is also controllable.
Post time: Dec-10-2021