1. China's export resilience in 2021 exceeds market expectations
At the end of 2020 and the beginning of 2021, the mainstream market forecast for China's export situation is that the export growth in 2021 will be stable, basically within 10% 1. Data from the General Administration of Customs show that China's export value (in DOLLAR terms, the same below) has maintained double-digit growth since October 2020 and increased by 29.9% for the whole of 2021, with nine months of actual export growth higher than the average market forecast. According to WTO data, since the second quarter of 2020, the global market share of exports has increased significantly, reaching 15.0% in the first three quarters of 2021, 0.5 percentage points higher than the same period last year, and significantly higher than the average 13.0% in the same period from 2015 to 2019.
Reasons for rapid export growth: the recovery of external demand drives the increase of quantity growth, and supply and demand factors jointly push up the contribution of price
Global demand has picked up, and export volumes have risen markedly. In 2021, the global economy recovered rapidly thanks to rising vaccination rates and support from loose fiscal and monetary policies. In January 2022, the World Bank released the latest Global Economic Outlook, which predicted that the global GDP would grow by 5.5% in 2021, with 5.0% growth in developed economies and 6.3% growth in emerging markets and developing economies. In October 2021, the WTO predicted that global trade volume would grow by 10.8% in 2021, up 2.8 percentage points from its march forecast.
Driven by supply and demand factors, export prices rose significantly. Due to the impact of COVID-19 and bad weather, the global supply chain has been disrupted, and the combined demand has recovered rapidly, significantly widening the gap between supply and demand. The global MANUFACTURING PMI output index has been consistently below the new orders index since March 2021, with the gap reaching 2.2 percentage points in October, the largest gap in 12 years. During the same period, the input price index and output price index both rose significantly, rising to 74.4% and 63.7% respectively in October, the highest since 2009.
From March to September 2021, global commodity export prices maintained double-digit year-on-year growth, rising to 15.8% in September, while export volume growth was only 3.0%. From July to September of 2021, the year-on-year growth rate of China's commodity export price expands. The growth rate of Export price in September and December is 10.6% and 9.3% respectively, which is higher than the growth rate of export quantity in that month of 8.4% and 7.3% respectively, and is the main contribution to the growth of export value. However, the growth rate of export value in other months is still dominated by the contribution of quantity.
Reasons for the increase in export share: epidemic prevention and control advantages, intensified supply-demand mismatch, export boom diffusion, supply chain layout optimization
Advantages of domestic epidemic prevention and control to ensure the smooth development of production activities. In the early stages of the Spread of The Delta virus in April 2021, countries intensified their epidemic prevention and control policies. Since then, however, as the global vaccine coverage rate has increased and countries have relatively sufficient medical resources to deal with confirmed cases, more and more countries have started to co-exist with the virus, and the overall epidemic prevention and control efforts have slowed down. However, as countries gradually relax social distancing measures, the risk of transmission of the virus is increasing as human contact increases.
For example, starting in mid-2021, Singapore switched from pursuing a zero-out policy to learning to live with the virus. Although the country had a high rate of full vaccination, it saw a resurgence of the disease after opening up, with more than 5,000 new confirmed cases in a single day at the end of October. On the contrary, While accelerating the vaccination campaign, China has continued to implement strict epidemic prevention policies. Despite the slight recurrence of the epidemic, there have been few new confirmed cases, thus avoiding the spread of the epidemic and ensuring the smooth operation of foreign trade enterprises. From April 2020 to the end of 2021, the correlation coefficient between monthly newly confirmed cases in the world (excluding China) and China's export value was as high as 0.75, indicating that the difference between domestic and foreign epidemic prevention and control had a great impact on China's export.
Since the outbreak, the pattern of overseas consumption and Chinese production has been further strengthened
After the epidemic, developed countries represented by the United States adopted extremely loose fiscal and monetary policies, and consumer demand recovered faster than production demand. In 2021, retail sales rose 17.8% from a year earlier, while industrial production grew just 5.5%. On the contrary, thanks to the resilience of the domestic supply chain, China's production recovered faster than consumption.
In the context of slow recovery of domestic demand and strong external demand, more domestic enterprises turn to export. In 2021, China will have 567,000 enterprises with solid import and export performance, an increase of 36,000. In particular, private enterprises, due to their strong adaptability and rapid adjustment, turn more to foreign trade: in 2021, private enterprises accounted for 56.0% of exports, up 2.0 percentage points from 2020. Moreover, with the support of the policy of stabilizing foreign trade, cross-border e-commerce, market procurement, overseas warehousing and other new forms and models of business have become an important force driving foreign trade growth. According to customs data, cross-border e-commerce exports grew by 24.5 percent in 2021. The export volume of market procurement increased by 32.1%, driving the export growth by 1.3 percentage points 2.
However, increased export competition has led to a deterioration in China's terms of trade, with the index consistently below 100 from February to December 2021. On the one hand, this means that domestic foreign trade enterprises in the international market bargaining space is compressed; On the other hand, it also shows that Chinese products occupy a larger share of the export market by virtue of their price advantage.
Industrial production advantage drives commodity export boom to spread further
According to WTO data, the global market share of China's manufactured exports increased by 1.7 percentage points in 2020 from 2019, slightly exceeding the 1.6 percentage point increase in the share of total exports. Among them, the share of textile exports increased by 7.8 percentage points from 2019. During the same period, the value of China's exports increased by us $90.5 billion from the previous year, with mechanical and electrical equipment, audio and video equipment, textile products, miscellaneous products (including furniture and toys, etc.) and plastic products (HS category 1) contributing the most, at 738%, 224%, 217% and 139%, respectively, according to the General Administration of Customs. It shows that epidemic prevention materials and household economy-related products are the main driving items of export growth in 2020.
However, in 2021, with the continuous increase of global vaccine coverage rate and gradual relaxation of epidemic prevention and control policies, the demand for epidemic prevention materials and household economy-related products will weaken, contributing less to the increase of China's export value (compared with 2019). However, thanks to the strong resilience of the domestic supply chain, Thirteen categories (HS category) including base metals contributed significantly, indicating that the export boom is spreading further.
Before the pandemic, China had taken the initiative to adjust the layout of the global supply chain
After its accession to the WTO, China has rapidly integrated into the global economy and trading system, and its share of imports and exports in the global market has increased. In 2019, the share of China's import and export was 10.8 percent and 13.3 percent, up 4.7 and 6.0 percentage points respectively from 2005. Despite the outbreak of Sino-US trade frictions in 2018, Thanks to China's initiative to adjust the layout of its supply chain, part of its exports to the US were shifted to ASEAN countries, and part of the US imports from China were also shifted to ASEAN countries, so China's export share did not decrease. As ASEAN countries mainly focus on processing trade, the proportion of intermediate goods in China's export in 2018 and 2019 increased by 1.3 and 0.5 percentage points respectively compared with the previous year. This proves once again the result of adjusting the layout of supply chain and maintaining the resilience of export growth.
2. Two basic judgments on China's export situation in 2022
Export market share is likely to rise steadily
With unequal distribution of vaccines, the impact of the epidemic in developed countries faded more quickly
In December 2021, WHO officials said that the COVID-19 pandemic is "very likely" to end in 2022 if the novel coronavirus transmission continues to be contained and deaths continue to be reduced, provided that existing vaccination measures are widely available. However, the emergence of a new mutant strain of omicron has once again added to the uncertainty of the epidemic. In January 2022, the World Bank and the INTERNATIONAL Monetary Fund lowered their forecasts for global economic growth in 2022 by 0.2 percentage points and 0.5 percentage points respectively, to 4.1% and 4.4%, respectively, due to the new threat posed by the mutant strain of COVID-19.
Given the low severity and fatality rates associated with omicron, we are inclined to see a gradual improvement in the global outbreak in 2022, assuming no new mutant strains emerge. On January 24, WHO Director-General Tedros Adhanom Ghebreyesus also said that if countries fully use all strategies and tools, the worst phase of the epidemic can be ended this year and COVID-19 will no longer be a global public health emergency. However, the global distribution of vaccines remains uneven. More than 75% of people in developed economies receive at least one dose of vaccine, 55% in emerging economies and developing countries, and only 8% in low-income countries. The World Bank predicts that if current vaccination rates continue, only a third of people in low-income countries will be vaccinated by the end of 2023. This means that developed countries are recovering faster due to high vaccination rates and reduced impact of the pandemic, while emerging economies and low-income countries are affected for longer.
Of course, if the virus mutates again or breaks through the immune barrier, the global economy will be hit again, and given the need to enhance vaccine protection through booster shots, the actual ideal vaccination rate should be higher than the current level of 70-80%, leaving China to enjoy the export dividend for much longer.
The consumption-oriented economic structure of developed countries makes China's production advantages continue to highlight
According to the real GDP composition data disclosed by the United Nations Statistics Division, in 2019, the manufacturing output of East and Southeast Asian countries accounted for nearly half of the global total, much higher than the 24.3% share of consumer spending, indicating that the global production capacity is mainly concentrated in these countries. In terms of vaccine coverage rate, as of January 18, 2022, the vaccine coverage rate in developed countries in East Asia, Southern Europe, Northern Europe, Western Europe and North America has exceeded 70%. However, in these countries, the consumption expenditure of other countries except East Asia accounts for 50.9% in total, far exceeding the manufacturing output which accounts for 35.5%. As a result, even if these countries emerge from the pandemic faster than others, their economies are structured to be dominated by a recovery in consumption, particularly in services. China, on the other hand, will continue to play its role as a global manufacturing center and maintain the resilience of its exports by taking advantage of the epidemic prevention and control advantages.
The stickiness of foreign trade orders brought by high export growth has delayed the decline of China's export share
Thanks to the perfect domestic industrial production system, China's export products cover a wide range of categories and share distribution is relatively even. As mentioned above, China's export boom will further spread in 2021. This means that the international market that was not open to foreign trade enterprises before the epidemic has significantly expanded, and the products exported by enterprises are more familiar with and accepted by overseas consumers. Although the risk of backflow of foreign trade orders cannot be ruled out after the global epidemic improves and industrial production in other countries gradually returns to normal, for some commodities (especially those with strong homogeneity), overseas importers may continue to choose To import from China in the short term once their buying habits form.
The export boom may have ended
The global economic recovery continues, but has weakened further
After a strong rebound in 2021, the global economy is likely to see slower growth momentum in 2022. In January 2022, the World Bank predicted that global economic growth would slow down from 5.5% in 2021 to 4.1% in 2022. Slowing global economic recovery will lead to slower growth in the volume of trade in goods. In October 2021, the WTO forecast that growth in the volume of global trade in goods would slow to 4.7% from 10.8% in 2021, close to the upside scenario of its March trade forecast, although it stressed that this still depended on a number of assumptions, including accelerated production and distribution of COVID-19 vaccines.
As noted earlier, the slow progress of vaccination in emerging economies, combined with the continuing impact of the pandemic and weak policy support, has made their economic recovery significantly weaker than that of developed economies. The World Bank forecasts that overall output in emerging markets and developing economies will remain 4% below pre-pandemic levels in 2023, with fragile and conflict-affected emerging economies more than 7% below pre-pandemic levels, but advanced economies are expected to return to pre-pandemic levels by 2023.
However, in terms of consumption demand and inventory replenishment demand, the recovery of developed economies plays a limited role in driving China's exports.
Consumption of goods has gradually shifted to service consumption, which has limited impact on exports. After the outbreak of COVID-19, the US consumer demand recovered faster than production due to loose policies. The significant increase of transfer payment income and employee compensation in personal income has driven commodity consumption far beyond the historical trend and become an important factor driving the growth of China's commodity export. Consumer service consumption has yet to return to pre-epidemic levels due to the restrictions of epidemic prevention and control and social isolation measures. In 2022, under the baseline scenario, as the epidemic gradually improves and social distancing measures are further relaxed in developed countries, excessive consumption of goods by residents may decrease, while increased service consumption may have a limited driving effect on China's export. However, given that labor shortages remain severe in the U.S., short-term wage increases are expected to continue, slowing the decline in consumer demand for goods.
The replenishment of inventory in the United States has a limited effect on China's export. We use PPI industry data to calculate the actual inventory levels of manufacturers, wholesalers and retailers respectively. Based on the actual inventory data from 2010 to 2019, we use HP filter to extract trend terms and extrapolate and find that the actual inventory water in the three fields is lower than the trend value on average. Even if the real inventory gap were fully closed by the end of 2022, returning to its trend level of $1.9tn, about $280bn of real inventory would need to be added. Using November 2021 as the base, the nominal inventory needs to be increased by about $380 billion. From 2010 to 2019, imports accounted for an average of 11% of total inventories. Without taking into account changes in domestic sales and production, we calculate that restocking could boost US imports by about $42 billion in 2022. Since the us imports from China accounted for 20% of its total imports from 2010 to 2019, it is estimated that the us demand for inventory replenishment only led to an increase of us $8.4 billion in China's exports to the US, and the driving effect on China's export growth is still limited
Global supply chain problems are more likely to improve in the second half
The supplier delivery index in the global MANUFACTURING PMI fell to a record low of 34.8 in October 2021 (a lower delivery index indicates a longer delivery time). In theory, supply chain disruptions and increased demand due to economic recovery should extend delivery times. The ECB's breakdown of PMI supplier lead times globally (excluding the eurozone) suggests that while demand factors have played a major role, supply chain disruptions have accounted for a third of the increase in lead times over the past six months, with an increasing contribution. This is consistent with the trend of global Supply chain Stress index released by the New York Fed during the same period, which rose to 4.37 in October 2021, a record high. Although the two indicators showed signs of improvement in November and December, they still deviated significantly from normal levels, reflecting that supply chain problems are still severe. In addition, it should be pointed out that the delivery time of suppliers in developed economies is much longer than that in emerging economies, showing obvious heterogeneity, which may be related to the significantly faster recovery of demand in developed economies than in emerging economies.
Factors most associated with supply chain disruptions include logistical disruptions, semiconductor shortages and Labour shortages. These factors mainly promote the growth of China's export volume through two channels: one is to highlight the resilience advantage of China's supply chain and increase China's export volume; the other is to push up prices (especially producer prices) and increase the contribution of price factors to export volume. The ECB expects supply chain disruptions to improve gradually in the second half of 2022, but does not rule out the risk of further supply disruptions as the pandemic intensifies 5. In the third quarter of 2021, Duke University CFO survey also showed that most respondents believe supply chain problems are likely to improve in 2022, especially in the second half of the year.
As a result, we believe that global supply chain constraints are likely to continue to support China's exports in the first half of 2022, but as supply chain issues gradually ease in the second half, China's export momentum may weaken.
Challenges faced by foreign trade enterprises
China has been deeply integrated into the global supply chain system, and its position in traditional trade network supply has significantly improved compared to more than a decade ago. China has replaced Japan as the core region of Asia. Therefore, in addition to highlighting the resilience of domestic supply chains and pushing up the contribution of prices to export value, global supply chain problems will also restrict the production and transportation of foreign trade enterprises, especially small, medium and micro foreign trade enterprises, and increase the operating pressure of enterprises. The preliminary investigation results of the Ministry of Commerce show that small and medium-sized foreign trade enterprises are facing two main difficulties: high shipping costs, some raw material prices are still high, corporate profits are severely squeezed
In addition, since June 2020, both bilateral and multilateral exchange rates of RMB have accumulated a certain increase, which has had a serious impact on export enterprises. The impact of RMB appreciation in the early stage is mainly manifested as financial impact: The average closing price of three and five months 'lag increases by 4.9% and 7.3% respectively in November 2020, that is, the maximum exchange loss of export enterprises is 4.9% or 7.3%, which exceeds the export profit margin of most enterprises, especially small and medium-sized enterprises. The impact of the recent RMB appreciation is mainly reflected in the impact on export competitiveness: in the fourth quarter of 2021, the REAL effective exchange rate index of RMB compiled by BIS increased by 3.3% and reached 13.8% at an annual rate, which significantly increased the impact on export competitiveness.
At present, domestic small and medium-sized enterprises export generally exist "single dare not accept" or "increase income does not increase profit" phenomenon. Since May 2021, the Chinese manufacturing PMI index of new export orders continued to below 50, among them, the medium-sized and small enterprises for new export orders index gradually lower, small businesses to mention a new export orders index has been sustained since March 2021 below from the line, only in the past two years in January 2020 and October above 50
3. Forecast of China's export growth rate and share in 2022
The value of China's exports is expected to grow by 10.8%
As mentioned above, under the background of slowing global economic recovery, possible improvement of supply chain problems and greater operating pressure of domestic foreign trade enterprises, it is expected that China's export boom may have come to an end. However, the gradual improvement of global pandemic and supply chain issues should lead to better export growth in the first half of 2022 than in the second half. According to the seasonal pattern of sequential export growth, the year-on-year export growth in the first and second quarters is 16.0% and 16.6% respectively, and the year-on-year export growth in the third and fourth quarters is 6.5% and 6.1% respectively. For the full year, China's exports are expected to grow 10.8%. Further, we use CPI and PPI indicators to fit the export price index, and estimate that the export price will increase by 2% in 2022, and the corresponding export volume will increase by 8.8%.
China's export share is expected to rise to 15.5%
In the first three quarters of 2021, China's export share was 15.0 percent, ACCORDING to WTO data. Given that China's export share averaged 0.2 percentage points lower than its full-year share between 2015 and the first three quarters of 2019, we expect China's full-year export share to be around 15.2% in 2021, up 0.5 percentage points from the previous year. As mentioned in the above analysis, China's export share is likely to rise steadily in 2022. Based on WTO's forecast of 4.7% year-on-year growth in the volume of global trade in 2022, Bloomberg's forecast of 4.2% global CPI growth in 2022, and our forecast of 10.8% growth in The value of China's exports, we can estimate that China's export share will be about 15.5% in 2022, up 0.2 percentage points from the previous year. However, if a bad situation occurs, that is, the global epidemic worsens and supply chain problems do not improve significantly, then China's export dividend period will be further extended and China's export share may be higher.
2/13/2022 03:30:00 PM
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economy
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