China May Have Just Peaked as an Export Powerhouse
Plenty of experts have lived to regret their predictions of the downfall, the collapse — the peak of anything China. But here it is. A bold call for the ages: We very likely have just witnessed Peak China (as an export powerhouse).
In the third quarter of last year 14% of all global goods exports came from China, according to data collated by the World Trade Organization. That was second only to the final quarter of 2015 when China’s share of global exports topped 15%.
That share may still be beat in the fourth quarter of 2019, data for which is not available yet. China’s exports remained robust in 2019. (We have the Chinese numerator for all of last year; we don’t yet have the full 2019 global denominator from the WTO).
But it certainly won’t be repeated in the first quarter of 2020 with what is a de-facto industrial shutdown in the world’s second largest economy because the coronavirus crisis likely to put a huge dent in Chinese exports this quarter.
Yes, history says epidemics tend to have fleeting effects on economies. As is the case with other natural disasters, the trough in one quarter is often followed by a steep recovery in the next. Which is why markets can be as sanguine as they seem to be.
The health crisis now underway is not happening in isolation, however. It is just the latest blow. There is more going on.
China’s export power was already under assault from President Donald Trump’s trade wars. Companies in the U.S. and Europe have been increasingly facing pressure to shift supply chains for geopolitical reasons. Worries over everything from espionage to human rights in Xinjiang have piled on more pressure to boot. China has also begun shifting its own export capacity offshore via President Xi Jinping’s Belt and Road Initiative.
Add coronavirus and questions over the government’s response and it’s not a stretch to say that you’d have to be courageous — or Elon Musk — to build a factory in China today.
To be clear, the argument here is not that China is suddenly going to stop being the world’s assembly shop. Or a major economy. Or an export power.
It is simply that, for many reasons, there appears to be something structural happening to China’s relationship with the world and that the coronavirus shutdown will add to that, even if we come out of it soon. It’s hard to see China’s share of global exports growing much beyond this. That may in time be part of a bigger story with even bigger consequences for other economies and companies and markets. For the time being, though, it’s the only peak we’re willing to call.
Charting the Trade War
The prime ministers of India and Sri Lanka agreed to strengthen cooperation to boost trade and investment. Sri Lanka was known for taking Chinese loans to fund vast infrastructure projects though its appetite for Chinese cash waned after rising debt forced it to sell the Hambantota port back to China Merchants Port Holdings. The deal prompted concern in India about China developing a port close to its southern coastline for future military uses. Sri Lanka is seen to have increasing strategic importance due to its proximity to some of the world’s most important sea lines.
Today’s Must Reads
- Off track | The coronavirus is adding more uncertainty to the global trade outlook, with Bloomberg’s Trade Tracker showing some gains before the virus shuttered big parts of China’s economy.
- Liquidity crisis | Sommeliers, wine importers and restaurateurs marched in Washington with a message for the U.S. administration: “Keep your tariffs off our Beaujolais.”
- Walking on sunshine | Trump’s efforts to boost American solar manufacturing via import tariffs can only do so much, according to the U.S. International Trade Commission.
- Fowl situation | South Africa will increase tariffs on poultry imports from the U.S. and Brazil, handing a boost to local producers to counter the dumping of cheap overseas chicken.
- Oscar night | The film “American Factory” won the Academy Award for best documentary feature for its portrayal of the challenges an Ohio factory encountered when Chinese buyers took over.
- Purchase agreements | Virus complicates U.S.-China phase one pact despite tariff reductions.
- Europe’s week | Germany and the U.K. are in doldrums, and Riksbank probably will hold rates.
- Feb. 11: U.K. trade balance
- Feb. 14: EU trade balance
- Britain’s departure from the EU on Jan. 31 marked the start of a new, more complex phase of the negotiations. Click here for a timeline to the year ahead.
©2020 Bloomberg L.P.