China dominates global solar panel sales and has overtaken Japan as the world’s largest auto exporter. “Global sales of low-tech products like shoes are actually increasing.”
Now Beijing is considering using its considerable power as an exporter to try to stabilize an economy suffering from problems that are clearly homegrown — a housing crisis and weak spending by consumers who are still cautious after nearly three years of tight pandemic restrictions. The decision could impact the entire global economy and trigger a backlash from trading partners already threatened by China’s exports.
“If the world’s second largest economy relied on the rest of the world to fuel its growth, it would not bode well for the global economic outlook,” said Eswar Prasad, an economist at Cornell University.
Top Chinese government officials have said they plan to invest in modernizing industry and boosting domestic trade, not just flooding foreign markets with manufactured goods like electric vehicles. However, economists say the experience of countries with consumer spending problems suggests a surge in Chinese exports is likely.
Relying on exports to boost juice growth is a tried and true formula for China. And Beijing has strong leverage in its currency, the renminbi, which it has depreciated by around 7 percent against the dollar since mid-January. This makes the relative cost of Chinese goods cheaper for buyers in other countries.
“The normal way for a country to emerge from a housing crisis is to export the way out,” said Brad Setser, a former international economic leader under the Obama and Biden administrations who is now on the Council on Foreign Relations.
China’s property problems run deep. An oversupply of vacant and unfinished homes has led to a sharp decline in construction, once the country’s largest industry. Developers are drowning in debt. Two Chinese property companies halted some payments on their foreign debt on Friday, and the developers’ shares have been sold off in recent days. A fall in house prices, the most important asset of Chinese households, has caused hundreds of millions of households across the country to become more cautious about spending at all.
At the same time, local governments, which have been spending heavily during the pandemic, are so indebted that they are struggling to provide healthcare to residents and pay civil servants’ salaries and pensions.
Thailand and other Southeast Asian countries pulled out of economic troubles after the Asian financial crisis in 1997 and 1998 through exports. Ireland and Spain did the same after the global banking collapses of 2008 and 2009. Greece did the same after Europe’s financial woes in the following years.
Still, China could provoke a policy backlash from countries concerned that a surge in exports could undermine their own economies, costing workers jobs and companies their market share.
In Europe, a key market for China for a variety of goods, officials and business leaders have signaled caution about China’s rising trade surplus as they already grapple with an influx of Chinese cars. And China’s close partnership with Russia, a country now vilified across much of Europe for its invasion of Ukraine, has raised concerns in Europe about the continent’s dependence on China.
Instead, China is increasing its exports to Southeast Asia, where these goods are further processed and shipped to Europe and the West, said Deborah Elms, executive director of the Asian Trade Center, a Singapore-based trade consultancy.
But there is also a practical challenge for China: Its trade surplus in manufactured goods is so large — equivalent to a tenth of China’s entire economy, according to Setser’s calculations — that it could be difficult to expand further.
According to the United Nations Industrial Development Organization, China accounts for almost a third of global manufacturing output.
Further growth could be particularly 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 compared to last year,” said Zhou Shaopeng, sales manager at a plastic pipe manufacturing company in Hebei Province.
But China’s recent fall in share prices could trigger a recovery in exports. Government statements in recent weeks have highlighted plans to streamline trade within China’s borders, not just exports.
“China realizes how to put these two together and integrate them — maybe that’s more important than just foreign trade,” said Zhan Yubo, director of the Western Economics Research Office at the Shanghai Academy of Social Sciences, a government advisory institution.
While rising exports pose political risks, experts say there is one area where China has room to expand its overseas sales: new technologies. China has quadrupled its auto exports to more than $6 billion a month in just two years, driven by its influence in electric vehicles. The value of its auto exports surpassed the value of smartphone exports for the first time last month.
Two decades of heavy investment in electric cars and other innovations are fueling rising sales and growing jobs, as seen at factories on the eastern outskirts of Shanghai.
Tesla has a huge factory in Shanghai and, in addition to supplying the Chinese market, already exports a large number of cars throughout Europe and Asia. General Motors also has large factories in the city. Behind these processes is a dense network of suppliers.
One such company, Kunyi Electronics Technology, which makes special tools for researchers working on autonomous cars, invested 45 percent of its revenue in research and development last year, said Chen Zhongming, chairman of the company. The company has tripled employment in the last three years to 450 employees.
Domestic and foreign automakers in China are now “ready to put much more of their revenue into research and development,” he said.
SinoFuelCell, a Shanghai-based company that makes hydrogen-based propulsion systems primarily for 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 David Dai, the general manager, as he passed a row of factories with machines assembling the fuel cells. “Next month, a robot will take care of six machines.”
Green energy is another area where China is thriving. Its solar panel exports have tripled over the past three years, to nearly $5 billion a month. Even as countries in the European Union, North America and elsewhere increase their own production, China’s exports are likely to keep growing, said Yan Qin, an energy analyst at the London Stock Exchange Group.
Experts at the World Bank and elsewhere have said China should seek to shore up its domestic economy by strengthening health insurance, pensions and other aspects of the social safety net to make Chinese households more confident about spending.
But such a change would take time. At the moment, China is still pouring money into investments, including more and more roads and railway lines, but also many factories.
“Investment creates jobs,” said Mr. Zhan. “Jobs create income and salaries, income and salaries create consumption.”
Li You contributed to the research.
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