Credit: CFP

(About the author: He Weiwen is the Executive Director of China Association of International Trade, Executive Director of China Society for World Trade Organization Studies, expert of TMTPost International Think Tank, and senior researcher of the Center for China & Globalization. Previously he was the Economic and Commercial Counselor of the Consulate General in San Francisco and New York, the United States.)

China's total imports and exports reached 41.76 trillion yuan in 2023, up 0.2% from the previous year. After stabilizing in the fourth quarter, the figure finally reached the positive territory. Exports amounted to 23.77 trillion yuan, an increase of 0.6%, while imports amounted to 17.98 trillion yuan, a decrease of 0.3%. In 2023, China's imports and exports displayed resilience, with new export growth drivers being new energy vehicles, lithium batteries, and solar cells. The sectors saw combined exports of over one trillion yuan. 

However, when converted into dollars, all figures showed negative growth. The total import and export amounted to 5936.83 billion US dollars, down 5%. Exports were 338 billion US dollars, down 4.6%, and imports were 2556.8 billion US dollars, down 5.5%. Net exports contributed negatively to China’s GDP growth in 2023.

I. China's Trade With Developed World Falls, Worsening Trade Structure

(i) Regional Landscape

In 2023, trade with the Belt and Road countries grew by 2.8%. In particular, China’s trade with Russia soared 26.3% to reach $240 billion. However, this growth was insufficient to compensate for a sharp decline with developed country trade partners including the U.S., EU, Japan and South Korea. The drop in trade with the countries and regions was 11.6%, 7.1%, 10.7%, and 13.5%, respectively. Exports to them, in particular, fell by 13.1%, 10.2%, 8.4%, and 7.2%, respectively. Exports to the U.S. and the EU both decreased by double digits, doubling the 4.6% drop in global exports. It is noteworthy that China’s exports to the U.S. tumbled 13.1% year over year, compared with a 12.5% decline during the global financial meltdown in 2009 and in 2019 after U.S. President Donald Trump's tariff hikes. The decline was the steepest in 45 years since the establishment of diplomatic relations between the United States and China. Notably, the Association of Southeastern Asian Nations (ASEAN), our largest trading partner and major Belt and Road countries, also saw a decline in trade with China in 2023, with bilateral trade, exports, and imports down by 4.9%, 5.0%, and 4.8%, respectively, roughly the same level as the decline in the global trade (a drop of 5.0%, 4.6%, and 5.5%, respectively). See the table below for more details.

Source: General Administration of Customs, Statistical Alert, www.customs.gov.cn

In 2023, China's exports to the EU, the U.S., ASEAN, Japan and South Korea totaled $183,709 million, equivalent to 54.2% of total exports. The performance of these markets basically determines the big picture of China's exports. Exports to Russia and Africa combined amounted to $283,754 million, accounting for 8.4% of total exports, with a limited impact on China's overall export situation.

In 2023, imports decreased by 5.5% from the previous year, with imports reductions mainly from the U.S., Europe, Japan, South Korea, and ASEAN. Countries that saw growing exports to China included Russia, Australia, Canada, and Brazil. See the table below for more details.

Source: General Administration of Customs, Statistical Alert, www.customs.gov.cn

Similar to the export landscape, the growth in imports from Russia and other countries and regions is far from sufficient to offset the decline in imports from the U.S., Europe, Japan, South Korea and ASEAN.

(ii) Product Structure

1. Exports: Most categories of products registered a smaller amount of exports. Despite new growth reversing the decline to some extent, the overall picture remained unchanged. See the table below for more details.

Source: General Administration of Customs, Statistical Alert, www.customs.gov.cn

Exports of traditional labor-intensive products declined across the board, indicating a clear shift in the supply chain. Exports of electromechanical products only decreased by 2.4%, which is only half of the overall export decline. The main reason is the sharp increase in exports of automobiles and ships. But this does not change the drastic decline in high-tech exports, which fell by 10.8%, more than twice the total decline in exports. This suggests a worsening structure of export products as a result of the large decline in exports to developed countries.

2. Imports: Growth was mainly attributed to energy and primary products, with a worsening product structure

Import growth in 2023 comes mainly from energy and other primary products, with imports of electromechanical and high-tech products declining dramatically. See the table below for more details.

Source: General Administration of Customs, Statistical Alert, www.customs.gov.cn

Similar to the exports landscape, the overall decline in trade with developed countries has further downgraded the structure of imported products. Another reason is the sluggish domestic demand and overcapacity, thus dampening import demand.

II. Localized and Shortened Supply Chain

The decline in China's imports and exports in 2023 is related to overseas demand and insufficient domestic demand, as well as to the gradient transfer effect of labor-intensive products. But this is not the main reason. The ongoing geopolitical tension, camp politics and geo-economic fragmentation in the world are the fundamental reasons. This can be confirmed by data and a series of evidence.

(i) Localized Transfer in the U.S. Supply Chain

Figures from the U.S. Bureau of Economic Analysis (BEA) show that in the first 11 months of 2023, U.S. imports of goods from the world amounted to $2,836.696 billion, which is 5.1% lower from a year earlier, or a net decrease of $153 billion.The imports from North America (Canada and Mexico) were $826.713 billion, an increase of 0.5%; imports from the European Union were $528.299 billion, an increase of 4.7%; and imports from the Pacific Rim region declined by 12%, a net decrease of $117.353 billion. That means three-quarters of the decrease in U.S. imports was attributed to the Pacific Rim region. Moreover, 90.3% of the net decrease from the Rim-Pacific region was attributed to China, a net decrease of $105.943 billion. China dropped from being the largest U.S. trading partner and the largest source of imports in 2020 to the fourth place in 2023, following Mexico, Canada, and the European Union. Clearly, the US is transferring its supply chain out of China and East Asia and into North America and the Transatlantic region in a localized way.

This dynamic is further supported by the changing landscape of US trade in advanced technology products (ATP). See the table below for more details.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, www.bea.gov

For the first 11 months of 2023, U.S. global exports of ATP rose 6.9 % year-over-year. Exports to the European Union jumped 26.4 % and exports to China fell 9.5 %. Imports from the world over the same period were roughly flat year-over-year (up 0.3%). The imports from the EU grew by 14.2%, while imports from the Pacific Rim region fell by 9.5%, a net decrease of $26.28 billion. However, all of the decrease in imports from the latter came from China, with a net decrease of $28.59 billion, or 20.7%.

(ii) Relative Decline in Intermediate Goods Trade

As intermediate goods are the best demonstrated of trade between different links of the supply chain, the change in the trade and proportion of intermediate goods is an important indicator of the state of the supply chain. In 2023, the import and export of intermediate goods in major countries and regions generally showed negative growth, indicating the weakening of the supply chain.

Source: GTF, cited from China International Electronic Commerce Center, Big Data Service Department of the Ministry of Commerce, Weekly Foreign Trade Observer, Issue 190.

(iii) U.S. and European Countries Import Less from Asian Countries

Source: GTF, cited from Weekly Foreign Trade Watch, Issue 190, China Center for International Electronic Commerce, Big Data Service, Department of Commerce

The table above shows that in the first 11 months of 2023, total U.S. imports from eight countries declined by 3.4%. Imports from Asian countries fell across the board, represented by double-digit declines from Vietnam, Malaysia, Bangladesh, and Indonesia; while imports from North American neighbor Mexico and Poland in Europe were on the rise. The pattern of EU imports was similar. See the table below for more details.

Source: GTF, cited from China International Electronic Commerce Center, Big Data Service Department of the Ministry of Commerce, Weekly Foreign Trade Observer, Issue 190

Both the U.S. and the EU imported less from Asian countries while more from Mexico. The EU’s imports from Africa and South America declined drastically.

III. Global Geopolitical Divide and Geo-economic Fragmentation

Although sluggish market demand and weak product competitiveness have affected China's imports and exports, the increasingly fragmented geopolitical and geo-economic landscape has played a major role. The fragmentation has posed severe challenges to the external environment for China's imports and exports.

A recent report released by United Nations Development Programme (UNCTAD) estimates that global trade in goods is estimated to decline by 5% in 2023, with a net reduction of about $1.5 trillion. This is mainly due to geopolitical tensions and evolving trade landscape. From the first quarter of 2022 to the third quarter of 2023, the trade between countries in close proximity increased by 6.4% on a cumulative basis; the trade between more distant countries declined by a cumulative 4.3%, and the trade between more distant countries declined by 5.1%. Countries are increasingly preferring doing business with politically aligned trading partners, known as "friend-shoring". In the three years from 2020 to 2022, countries around the world witnessed an average of more than 5,400 trade and investment restrictions per year, almost double the number before the pandemic.

Kristalina Georgieva, the Managing Director of the International Monetary Fund, pointed out that if the world were divided into two camps led by the United States and China respectively, the world's GDP would be slashed by 5%, equivalent to Japan's economic size.

The World Bank has cut its 2024 global growth forecast from 2.6% in 2023 to 2.4% in its latest Global Economic Prospects report released on January 9, 2024 —the slowest half-decade of GDP growth in 30 years (2020-2024). Rising geopolitical tensions will take a new toll on the world economy in the short term. The global trade growth in 2024 is expected to be only half the average in the decade before the pandemic. Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade. By the end of 2024, people in about one out of every four developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the COVID pandemic in 2019.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.

IV. Estimates and Recommendations

(i) Basic Estimates

1. In 2024, the anti-globalization movement is expected to persist, with a potential escalation if Trump secures a victory in the presidential election. Over the medium term, this ongoing trend is anticipated to significantly impact the world economy, trade, and international investments due to heightened geopolitical tensions, increased geo-economic fragmentation, and the politicization of global supply chains. The foremost manifestation of these changes will be observed in the contraction and regionalization of "resilient" supply chains, particularly in the domains of chips, electronics, and communication products and components. Subsequently, this transformation is likely to extend to new energy vehicles, advanced materials, and fundamental minerals.

2. The United States is set to broaden its opposition to China's political system and ideology, elevating China to its biggest geopolitical challenge. The San Francisco vision of leaders from both China and the U.S. and the interactions between officials at various levels have significantly stabilized the relationship between the two countries. Therefore, the year of 2024 may offer a window period for the continued stabilization and slight improvement of the relationship between the two countries. However, this should not be misconstrued as a fundamental shift in the core U.S. strategy towards China. The foundational narrative remains one of securing national security with an emphasis on isolated boundaries and heightened security measures. The U.S. is likely to maintain a stance of partial decoupling while preserving general trade and investment interactions. The European Union, Japan, and the United States share fundamental values, but their strategies towards China differ, albeit with a common underlying position. China's trade and investment with developed countries will continue to be restricted.

3. The profound impact of geopolitical-driven fragmentation on the geo-economy has played and will continue to play a significant role in shaping the landscape of China’s future exports and imports. The initial factor contributing to the decline in exports to developed countries is this geo-economic fragmentation. The second factor stems from a shift dictated by economic laws, where the competitive advantages of traditional labor-intensive industries are progressively relocating outside our borders. Although there are signs of a slowing decline in exports to developed countries in the fourth quarter of 2023, the overall trend persists. The reshuffling of supply chains has also led to a negative impact on Asia's exports to Europe and the United States, subsequently affecting China’s imports and exports with ASEAN countries. However, the transatlantic supply chain, disrupted by this supply chain shift, is inherently incomplete and faces challenges in sustainability without significant contributions from Asia. Change is inevitable, but its full realization will take some time.

4. The global nature of research, development, production, and sales in advanced and emerging industries such as semiconductor chips and new energy vehicles involves numerous countries. Ultimately, these collaborations transcend mere "values." China is the largest trading partner of more than 140 countries and a major trading partner of the United States, Europe and Japan. With the most comprehensive industrial system, complete decoupling from China is not a feasible solution. China’s trade and investment cooperation with developed countries remains grounded in a solid foundation.

(ii) Countervailing Options

1. We should bear in mind the political goal of Chinese-style modernization and adhere to the national policy of opening to the outside world when formulating country-specific policies and industrial policies of foreign trade regions. China's import and export trade are integral parts of the national economy, and its trade relations with various countries and regions are crucial aspects of its foreign relations. The 20th Congress has identified the comprehensive promotion of Chinese-style modernization as the central task and the overarching political agenda for the CPC Party and the country. The 20th Congress set the goal to achieve socialist modernization by 2035, with a per capita GDP reaching the level of medium-developed countries. China's per capita GDP stood at $12,720 in 2022. The average per capita GDP of developed countries is US$25,600, based on the lowest-ranking OECD countries (excluding Mexico and Turkey), namely Czech Republic, Slovakia and Slovenia. Based on the growth rate in the past 13 years, China's GDP will exceed $3 trillion by 2035. In other words, the per capita GDP is anticipated to grow by $24 trillion to reach $30,000, totaling $42 trillion, nearing the level of the United States. To meet these ambitious targets, it is imperative to keep pace with the development of cutting-edge technologies such as artificial intelligence, digital economy, quantum computing, and others. China should absorb global knowledge, technology, and resources to significantly increase labor productivity and develop new high-quality productivity. This requires an unwavering commitment to implementing the national policy of openness to the outside world and fostering cooperation with the rest of the world. Given that advanced technologies are primarily owned by developed countries, it is crucial to work towards stabilizing and enhancing economic and trade relations between China and the United States, China and Europe, as well as with other developed countries, so as to create a stable and favorable international environment for the pursuit of China's modernization goals.

2. China should steer clear of falling into two divided camps. China’s trade relations are open to both the United States and the West, as well as the global South. China is committed to advancing trade with countries involved in the Belt and Road initiative, collaborating with Russia and developing countries, and fostering trade relations with developed nations, without neglecting any of these partnerships.

3. In terms of industry, China will upgrade the import and export structure by leveraging the power of generative artificial intelligence and big data. China should takes measure to reverse the shrinking share of high-tech exports in total exports. It is imperative for China to seek breakthroughs in the world's latest technology and scenarios, navigating through the challenges posed by the "small yard, high fence" strategy adopted by the U.S., and identifying new growth spaces and markets. China should stick to independent innovation and work to strengthen the technological prowess to achieve self-sufficiency in chip manufacturing, and increase market share. Efforts should be directed at retaining European and American multinational companies within the Chinese market, so as to compel the U.S. government to partially remove the technical blockade and trade restrictions on China. The pivot for import growth should shift from fossil energy and other primary products towards high-technology domains. Import structures need optimization to align with the requirements of Chinese-style modernization.

4.  In terms of geography, China aims to keep a presence in RCEP, G20, and other APEC member countries, which collectively account for over 60% of China's exports. Specifically, China puts a strategic emphasis on increasing imports from Europe and the United States to boost export. The goal is to attract and incentivize multinational corporations from Europe, the United States, Japan, and South Korea to expand their operations in China, with a focus on deepening involvement and strengthening supply chains for products such as chips, new energy vehicles, lithium batteries, and photovoltaic batteries. The integrity of these supply chains is vital to promoting the stability and expansion of trade.

Based on the situation in the fourth quarter of 2023, the decline in exports has been tempered. In 2024, the Renminbi value of imports and exports is anticipated to maintain growth, and there is a possibility that the growth of USD value may turn to the positive territory. If China’s assessment of the current situation is consistent with the reality and the right countermeasures are adopted, the import and export landscape is likely to witness sustained improvement, contributing to the development of the national economy.

(Note: 1 yuan equals US$0.14.) 

 (This is an exclusive article contributed by He Weiwen to TMTPost )

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