China dominates global sales of solar panels and has equaled Japan as the world’s biggest car exporter. It is even gaining ground in worldwide sales of low-tech products such as shoes.
Now Beijing is considering whether to channel its considerable power as an exporter into trying to stabilize an economy grappling with domestic problems – a real estate crisis and weak spending by consumers, nearly three years of tight lockdowns. Cautious even after pandemic restrictions. The decision could reverberate throughout the global economy and provoke a backlash among trading partners who are already under fire from China’s exports.
“For the world’s second-largest economy relying on the rest of the world to prop up its growth will not bode well for global economic prospects,” said Cornell University economist Ishwar Prasad.
Top Chinese government officials have said they plan to invest in upgrading industries and fostering more domestic commerce, not just filling overseas markets with manufactured goods such as electric vehicles. But economists say the experience of countries with consumer spending problems suggests that a wave of Chinese exports is likely to come.
Relying on exports to drive juice growth is a tried-and-true formula for China. And Beijing’s currency, the renminbi, is a powerful lever, allowing it to depreciate about 7 percent against the dollar since mid-January. This makes the relative cost of China’s goods cheaper for buyers in other countries.
Brad Setser, a former international economics policymaker in the Obama and Biden administrations who is now on the Council on Foreign Relations, said, “The typical way for a country to get out of a real estate slump is to export its way out.”
China’s property problems are complicated. The glut of vacant and unfinished housing has led to a sharp decline in construction, which was previously the country’s largest industry. Developers are drowning in debt. On Friday, two Chinese property companies froze some payments on their overseas debt, and shares of developers have sold off in recent days. A drop in house prices, the main asset of Chinese households, has made millions of households across the country more cautious about spending money.
At the same time, local governments, which spent heavily during the pandemic, are so deep in debt that they are struggling to provide health care for residents and pay civil servants’ salaries and pensions.
After the Asian financial crisis in 1997 and 1998, Thailand and other Southeast Asian countries exported to get out of the economic crisis. Ireland and Spain did the same in 2008 and 2009 following the global banking collapse. Greece followed Europe’s financial troubles in the following years. ,
Yet China could take political blowback from countries that are concerned that a flood of exports could destroy their own economies, costing workers their jobs and companies their market share.
In Europe, which is a major market for China for a variety of goods, officials and business leaders have indicated they are wary of China’s growing trade surplus as they already struggle to cope with the influx of Chinese cars. have been And China’s close partnership with Russia, a country now drawing condemnation across much of Europe for its invasion of Ukraine, has raised concerns in Europe about the continent’s dependence on China.
China is increasingly exporting instead to Southeast Asia, which further processes these goods and sends them to Europe and the West, said Deborah Elms, executive director of the Asian Trade Center, a trade consulting firm in Singapore.
But there is also a practical challenge for China: its trade surplus in manufactured goods is so large – equivalent to a 10th of the entire Chinese economy, according to Mr Setser’s calculations – that it may be difficult to expand further.
According to the United Nations Industrial Development Organization, China accounts for about one-third of the world’s manufacturing output.
Further growth could be especially difficult now as some of China’s biggest export markets are showing signs of weakness after raising interest rates to fight inflation.
“Demand is weaker than last year,” said Zhou Shaopeng, sales manager of a plastic pipe production company in Hebei province.
But the recent fall in China’s currency could lead to a spurt in exports. Government statements in recent weeks have emphasized plans to streamline not only exports but commerce within China’s borders.
“China is figuring out how to put the two together, how to integrate them — maybe it’s more than just foreign trade,” said Zhan Yubo, director of the Western Economics Research Office at the Shanghai Academy of Social Sciences, a government advisory institute. is important.” ,
Experts said increasing exports poses political risk, but there is one area where China has room to expand its overseas sales: new technologies. China has quadrupled its car exports to more than $6 billion per month in just two years through its influence in electric vehicles. The value of its car exports surpassed smartphone exports for the first time last month.
Two decades of heavy investment in electric cars and other innovations is driving sales and increasing employment, as can be seen in factories on the eastern outskirts of Shanghai.
Tesla has a huge factory in Shanghai and already exports a large number of cars to Europe and Asia, apart from supplying to the Chinese market. General Motors also has large factories in the city. The bedrock of those operations is a dense network of suppliers.
One of those companies, Kuni Electronics Technology, which makes specialized equipment for researchers working on autonomous cars, invested 45 percent of its revenue in research and development last year, said its chief executive, Chen Zhongming. The company has tripled its employment to 450 people in the last three years.
Domestic and foreign automakers in China are now “willing to put more of their revenue into research and development,” he said.
SinoFuelCell, a Shanghai company that makes hydrogen-based propulsion systems for mostly cargo trucks, has focused on reducing costs to make fuel cells more competitive with internal combustion engines.
“One man used to take care of one machine – now, one man can take care of two machines,” said general manager David Dai, as he passed a factory row of machines assembling fuel cells. “Next month a robot will take care of six machines.”
Green energy is another area where China is flourishing. Its exports of solar panels have tripled in the past three years to nearly $5 billion a month. Yan Qin, energy analyst at the London Stock Exchange Group, said China’s exports are likely to continue to grow even as the EU, North America and other countries increase their own production.
Experts from the World Bank and elsewhere have said that China should seek to strengthen its domestic economy by strengthening health insurance, pensions and other aspects of the social safety net, so that Chinese households feel more confident in spending money. .
But that kind of change will take time. For now, China is still pouring in investments, including more roads and rail lines and lots of factories.
“Investment creates jobs,” Mr. Zahn said. “Jobs create income and salaries, income and salaries will create consumption.”
li yu Contributed to research.
