The General Administration of Customs reported that exports unexpectedly dropped by 3.2% year-on-year in January 2015. The U.S. remained China’s largest export market for the third time in three years. Whilst the EU was the biggest trading partner as China purchased more goods from EU countries than the U.S., export growth has been a key engine driving China’s rapid economic growth. In fact, exports of goods and services constitute 30% of GDP. Hence, hurdles for the export industry in the year of the goat in 2015 are overwhelmingly challenging.
Weak Demand from the EU and Japan
The recovery has been soft and inconsistent in the Euro area and Japan is still unable to escape from the legacies of the financial crisis. The recoveries for both markets appear intertwined with structural bottlenecks and are faltering to reach the target inflation level and hence the demands for China’s exports are likely to demise.
The devaluation of non-US currencies and strong US dollars discount the confidence of overseas buyers looking for Chinese goods, especially in Europe. It must be noted that it still takes time to realize any substantial impact of quantitative easing in the real purchasing appetites of enterprises. Additionally, the readiness to import from those resources export economies like Russia, Australia and Venezuela are likely to be weakened if the commodity prices sustain their horizontal move for the rest of 2015.
Domestic Pitfalls in China
Current pitfalls include struggling real estate market segments, on going anti-corruption campaigns and more directly production costs increase in key manufacturing bases along the coastal areas for industries will reduce the overall competitiveness of China’s export.
“2015 is currently at a point where a continued cost increase from levels we have seen to date would be unsustainable without affecting both profitability and competitiveness”
Fredrik Hähnel, SEB, China & Hong Kong
On the other hand, the nature of China’s exports are as that of a goat. Goats have no fear of heights by character and are animals that jump frequently, similar to the performance of 2015 China’s export segment.
“But there are some silver linings behind the clouds. The lower oil price creates a window of opportunity for oil-importing countries, such as China and India. What is critical is for nations to use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development”
Kaushik Basu, Senior Vice President and Chief Economist, World Bank
According to statistics, China’s exports of high tech products have been growing and accounted for 29% of total exports in 2012. Examples include mechanical and electrical products; hi-tech products like smart phones and even high speed railway technology. Moreover, China also increased the initial quota for export of jet fuel and gasoline for state-run refiners to boost export this year. All of the above are likely to supplement the deficiency from export of labour intensive goods.
“China’s trade growth is switching from high speed to medium-high speed”
Zheng Yuesheng, Spokesman for the Customs Administration
Amid sluggishness in the global economic recovery, reduction of manufacturing competitiveness and a decline in foreign investment in China’s manufacturing industry, China’s export industry has no choice but to take on the challenging hurdles from steep slopes like goals jumping towards the 6% target of the state in 2015.