In today’s heated geopolitical climate, China rarely gets the benefit of the doubt in western capitals. The country's refusal to follow western-style economic stimulus, like government handouts during the Covid-19 pandemic, has drawn criticism.
This year, 17 nations and the EU have restricted or investigated Chinese imports, concerned that Beijing is dumping products to escape its economic slump. The New York Times warns that trade tensions are “near boiling point”, while The Wall Street Journal suggests China risks causing a new “trade war”. But are these fears really justified?
To counter a property market crash, Beijing has injected money into its struggling manufacturing sector, leading to excess production being exported – a move critics say threatens jobs abroad.
But does trade data back these claims? The picture is nuanced.
According to Trade Data Monitor (TDM), Chinese exports rose 7 per cent in the first seven months of this year compared to 2023, with even faster growth in key markets like the EU (8.4 per cent), the US (8.2 per cent), South-east Asia (12.5 per cent) and Latin America (14 per cent).
Chinese exports of steel surged nearly 22 per cent, with major growth in appliances, vehicles and ships. Most of these exports were sold at discounted prices, making it harder for foreign companies to compete.
However, exports only tell half the story. Chinese imports also increased by 7.2 per cent in the same period, with significant growth in imports from the US (23.7 per cent), South Korea (20.9 per cent) and the UK (19.7 per cent), reported TDM.
This suggests China’s trade practices are more balanced than some critics claim.
While Chinese exports have surged, imports from major economies have also grown, benefitting foreign suppliers. This does not support the idea that China is engaging in mercantilism – exporting more while importing less.
Interestingly, while China’s export growth concerns are louder than ever, they would have made more sense from 2021 to 2023, when Chinese exports rose sharply, and imports stagnated.
Western media’s alarmist tone focuses on China’s growing trade surplus, but this year’s data reveals that many foreign companies have made gains in China. Critics may be cherry-picking facts to fit their narrative.
China’s trade competition with East Asian countries is another key factor.
After China’s export surge during Covid-19, East Asia gained market share, partly due to western efforts to reduce reliance on China. In response, Chinese companies lowered prices to regain market share in 2023. This price competition makes China’s export performance less unique compared to its East Asian rivals.
During the pandemic, Chinese export prices rose 25 per cent, which competitors in East Asia essentially matched. These higher prices made East Asian exporters vulnerable to China’s subsequent price cuts.
Despite recent discounts, Chinese export prices are still 5 per cent higher than pre-pandemic levels – contrary to claims by US President Joe Biden’s administration.
This makes it hard to argue that China is dumping goods at artificially low prices. More “de-risking” from China – shifting supply chains elsewhere – would have happened if East Asian competitors had not raised their prices. China’s lower prices make it harder for Western buyers to move away from Chinese sourcing, despite geopolitical risks.
Even with criticism of China’s exports, western governments have relied on familiar protectionist measures. Between 2015 and 2017, during a brief surge in Chinese exports, 11.2 per cent of Chinese goods faced import restrictions. Since 2022, 11.2 per cent of Chinese exports have again been targeted, with that figure likely rising by the end of 2024, according to Switzerland-based research institute, Global Trade Alert.
So, over 88 per cent of Chinese exports have not faced new trade restrictions in the past three years. This suggests that the criticism of Chinese trade practices may be louder than the actual impact. While future disruptions are possible, widespread curbs have not materialised.
Executives, investors and analysts would be wise to look beyond the critical rhetoric on China’s crisis response. Chinese companies have responded to calls for reduced sourcing by offering lower export prices, which may outweigh the trade war risks for foreign buyers.
This has made sourcing patterns more resistant to change than Western governments would prefer, with fewer companies likely to significantly cut or abandon sourcing from China.
The limited protectionist response to China's export growth may lead executives to downplay the risk of a trade war, though the US election could change that. If the risk stays low, incentives to shift production from China will also decrease.
Additionally, China’s import growth this year is benefitting some foreign suppliers, including western companies.
The bottom line: executives and investors should look beyond alarmist headlines.
Simon J. Evenett is the professor of Geopolitics and Strategy at IMD Business School and co-chairman of the World Economic Forum Trade & Investment Council