China's exports to the U.S. dropped by 18% in May compared to the same period last year, according to data retrieved from Wind Information. In addition, exports to Southeast Asia were also down. Bruce Pang, chief economist and head of research for Greater China at JLL, noted that the decline in the U.S. and Southeast Asian markets was too large to be fully offset by gains elsewhere. The slowing global economy, particularly in the U.S. and Southeast Asia, raises concerns about the future of Chinese exports.
In the wake of a global economic slowdown, China has found it difficult to depend on its near neighbors as viable export markets. Up until the pandemic, the Association of Southeast Asian Nations (ASEAN) - a collective of 10 countries including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - had actually become China's largest trading partner on a regional basis. Nevertheless, the latest numbers demonstrate that exports to Southeast Asia declined 16% in May in year-on-year terms, contributing to a decrease in China's overall exports. Additionally, American exports - China's biggest single-country trading partner - saw a reduced annual growth of 18% in terms of U.S. dollars in May. This left the American exports at slightly more than $42.48 billion, whereas China exported $41.49 billion to ASEAN that same month, according to customs data. Bruce Pang, chief economist and head of research for Greater China at JLL, remarked that while ASEAN can't perfectly compensate for the loss from the U.S. market, the single-country market allows companies to attain superior profit margins.
Trade has been a major factor in China's economic expansion, particularly throughout the COVID-19 crisis. Although exports now make up about 18% of the national economy, this figure is significantly lower than the roughly 30% it was prior, according to Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank. Wang addressed reporters on this issue Monday.
Global expansion, particularly in the U.S. and Southeastern countries, points to a murky future regarding Chinese exports. Lloyd Chan, a senior economist at Oxford Economics, explained in a Wednesday note that China's exports are likely to remain problematic given indications that the US economy will fall into recession during the second half of the year and overall inventory reduction is expected to continue.
Businesses in the U.S. have dealt with stockpiles that weren't sold in the latter half of 2020 due to high inflation. It is projected by the International Monetary Fund that U.S. GDP will decline from 2.1% in 2022 to 1.6% this year.
The IMF's April prediction showed ASEAN's GDP was anticipated to slow to 4.6% compared to 5.7% in the previous year. This projection was further validated by the sharp decline in exports to ASEAN members, such as Vietnam, Singapore, Malaysia and Thailand, from China in May. This diminution in China's exports to ASEAN countries caused a negative impact on headline growth, at -2.4pp. As per CNBC calculations of Wind Information data, both the United States and ASEAN accounted for 15% of China's total exports in May, whereas ASEAN held a slightly larger proportion of 16% of China's exports year-to-date. According to analysts at Nomura, China's exports will likely continue to diminish due to the global manufacturing downturn and the intensification of trade sanctions from the West.
Export dwindles as U.S.-China relations linger in a state of tension, leading Beijing to ramp up commerce with the countries in the Asia Pacific region. Jack Zhang, assistant professor of political science at the University of Kansas, explained to CNBC via email, "It is costlier to sell a number of articles to the U.S., specifically intermediary goods like machine components, to the tune of 20-25%". With America's market sealed off and the EU-China investment accord disintegrating after the Ukraine war, it has become increasingly important to increase trade with the emerging countries.
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In 2020, a 10-nation bloc - comprising Japan, South Korea, Australia, and New Zealand - along with China, signed a free trade agreement known as the Regional Comprehensive Economic Partnership (RCEP), making it the largest of its kind in the world. Beijing also indicated that it would seek to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an agreement which the U.S. is not a part of, although the U.K. announced its deal to join in March. Zhang commented that RCEP has enabled increased trade between China and the ASEAN nations, as well as the relocation of production of labor-intensive products to the region. Additionally, China is making progress towards a China-ASEAN Free Trade Agreement (CAFTA 3.0), and also looking to mesh with Mercusor in Latin America, as well as the Gulf Cooperation Council (GCC). – CNBC's Clement Tan provided a contribution to this report.
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