China’s exports grew at pre-Covid levels in 2024, pointing to a structural refocusing of its economy.
China reported much better-than-expected export and import growth in the January-February period, fueling hopes for a return to pre-Covid global demand. The news came hours after the “Two Sessions”, a high-level political conference in Beijing where Chinese officers set their goals for the year.
Exports rose by 7.5%, faring much better than the 1.9% increase expected by Reuters-polled economists. Imports jumped 3.5% instead of the 1.5% forecast.
Imports are still low compared to pre-Covid levels, showing that China’s internal demand is too weak for comfort. Chinese demand is hampered by several internal economic issues, from a nationwide real estate crisis to growing deflation.
China’s real estate sector reached a breaking point in 2021 after the default of Evergrande, the largest property developer in the country. Despite significant governmental efforts, Chinese authorities couldn’t avoid a further deepening of the crisis.
Evergrande now faces liquidation, as other Chinese developers find themselves in similar situations. The real estate market amounts to roughly 30% of China’s GDP.
Moreover, low prices nationwide have hampered post-Covid economic growth. Deflation decreased consumer spending, thereby lowering the GDP growth potential. Nevertheless, Chinese officials expressed confidence at the Two Sessions that the economy will reach the 5% growth goal in 2024.
Refocusing the economy
With the real estate market collapsing, China faces two choices: releasing government stimulus to the economy and refocusing internal production. Beijing chose to do both, though details on the planned economic stimulus are scarce and unclear.
What’s abundantly clear are the new production goals of the Eastern giant. At the Two Session conference, Commerce Ministry Wang Wentao outlined the “new three” products that could give China renewed competitive advantage.
The “new three” are electric vehicles, lithium-ion batteries, and solar panels, all products China is already the top exporter of. Exports of the “new three” increased by 30% last year, and are widely expected to keep growing in the following years.
Refocusing on the “new three” could limit the negative effects of the failing real estate market. It would also make China necessary again in the global value chain, as well as accelerate the country’s green transition.
Competition from the West will likely be fierce. Brussels fears losing its historically consolidated car industry and knows China has the material capability to do it.
Beijing already stripped the EU of its solar panel industry. At the time, the response from Brussels was too slow, and the industry was still too early in its existence for officials to seriously notice. The car industry, however, is a completely different animal.
