China Admits to Stress On its Export Sector Amid ‘Politicization of Trade’
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China Admits to Stress On its Export Sector Amid ‘Politicization of Trade’

Mohit Oberoi

China’s Commerce Ministry has admitted that its exports sector, which is a key driver of its economy, has been hit due to what it described as “politicization of trade.” China recently reported its Q2 2023 GDP data that came in below estimates.

According to CNBC translation, Li Xingqian, the head of the ministry’s external trade department said, “Some countries’ forceful push for ‘decoupling,’ ‘severing [supply] chains’ and so-called ‘de-risking’ are human-made obstacles blocking normal commerce.”

Notably, several countries, especially the US and India have been looking to diversify their supply chains. While the US started cracking down on imports from China under former President Donald Trump, who imposed tariffs on billions of dollars of Chinese goods, the process continued under the Biden administration.

China blames non-economic factors for interfering with foreign trade

The COVID-19 pandemic also exposed the vulnerabilities of the US supply chain and the country’s overreliance on imports from China. China’s controversial zero-COVID policy was among the reasons behind the shortage of several products in the developed world.

Several US companies have diversified their supplier base from China and have increased sourcing from other Asian markets. Apple for instance is increasing its focus on India and its leading supplier Foxconn is expanding its production capacity in India.

Meanwhile, Li said, “Companies say some countries’ politicization of trade has forced orders and production to move out, damaging the economic interests of both suppliers and buyers.”

Notably, it is not that the US is only looking to lower imports from China but is also restricting exports of critical technologies, especially advanced chips.

Last year, the US imposed restrictions on exports of several chips to China including Nvidia’s A100. The company however managed to circumvent the ban by selling A800 chips to China whose performance was below the limits that the Commerce Department had set.

The US is reportedly looking at banning more chip exports to China including the A800 chip.

Chinese economic growth has sagged

China’s GDP increased by 6.3% in Q2 2023 which was below the 7.3% increase that analysts were expecting. The world’s second-largest economy is targeting GDP growth of 5% in 2023. While the Q2 GDP growth is above that level, it’s because of the lower base effect as China’s GDP growth sagged in the second quarter of 2022 due to its COVID-19 lockdowns.

Commenting on China’s Q2 GDP growth, Carol Kong, an economist at Commonwealth Bank of Australia in Sydney said, “The data suggests that China’s post-COVID boom is clearly over.”

Kong added, “The higher-frequency indicators are up from May’s numbers, but still paint a picture of a bleak and faltering recovery and at the same time youth unemployment is hitting record highs.”

Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore also echoed similar views and said, “It was quite a disappointing number at just 6.3%, so clearly the momentum is slowing down.”

Tan added, “At this pace of deceleration, there’s now actually a risk that the growth target may not be achieved – this 5% may not be achieved if the economy continues to decelerate at this pace. So I think this does raise greater urgency for more policy support soon.”

shanghai index

Brokerages have revised China’s growth outlook

Multiple brokerages have revised down China’s growth outlook and last month Goldman Sachs lowered China’s 2023 GDP growth forecast from 6% to 5.4%.

Among other brokerages, Bank of America has made the steepest cut to China’s GDP projections and lowered its forecast from 6.3% to 5.7%. Standard Chartered lowered its forecast from 5.8% to 5.4% while UBS lowered it from 5.7% to 5.2%.

JPMorgan also lowered China’s 2023 growth forecast from 5.9% to 5.5% while Nomura – which is among the most bearish on the Chinese economy lowered its forecast from 5.5% to 5.1%.

Apart from the slowing economy, China is also batting high joblessness, and youth unemployment in the country is at record levels.

China’s exports sector has also weakened and its exports fell 12.4% in June which is the biggest drop in three years. The global economic slowdown is not helping matters either as it is leading to lower demand for Chinese exports.

China ended its tech crackdown

Amid a slowing economy, China also seems to have ended its tech crackdown. China cracked down on its tech sector in 2021 which eventually led to the delisting of Didi from the US markets. It also cracked down on sectors like edtech, video games, and delivery companies as President Xi Jinping pushed forward his “common prosperity” agenda.

However, over the last few months, China has taken several decisions which show that the country is now warming up to the tech sector. It allowed the downloads of Didi apps, approved Ant Financial’s request to raise capital, and also announced overseas listing rules for domestic companies.

The country has also hosted multiple business leaders including Apple’s Tim Cook and Tesla’s Elon Musk this year, in an apparent bid to attract more investments and reaffirm its position as an attractive outsourcing hub.

However, for now, the Chinese economy seems to be battling a worsening slowdown in growth, and trade tensions with its major trading partners are not helping matters.

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Mohit Oberoi

Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.