Chinese exports are not declining because of Covid or a global recession. The real reason is much more complex.
The slowing global economy and increasing tensions between world powers are redefining China’s role on the geopolitical chessboard. 2023 will be a year of change for the Eastern dragon, albeit slow and probably not clearly perceptible. There is a chance that historians will look at this year and mark it as a turning point in relationships between the West and China.
In May, Chinese exports dropped more than analysts predicted. Much more. The original forecast was a 0.4% decline, but Chinese exports in May actually fell by 7.5%. The announcement came on Wednesday from China’s Customs Bureau.
Economic values are notoriously difficult to predict. The real value is always a few percentage points away from even the most accurate forecast. Nevertheless, modern prediction instruments are so accurate that an average between different forecasts usually comes close to the real value.
China itself shocked the economic world when it revealed a GDP performance of 0.5% better than predicted. Not only is a 7.1% margin of error in Chinese exports unseen before, but it also proves that a historic switch might be happening before our eyes.
While some blamed last year’s zero-Covid policy for such a fall, it wouldn’t explain why, as we said, Chinese GDP actually rose more than expected. Another possible solution to reduced exports is a decrease in global demand as a recession approaches.
But Germany’s exports to China increased by 10.1% in April. And Germany just fell into a technical recession. Further, the global economic slowdown cannot account for such a massive decline.
The real solution is much more complex.
The end of "Made in China" and the start of a new era
China became the second-largest economy in the world thanks to its huge manufacturing capability. "Made in China" was a synonym for cheap, low-quality products coming from "the world’s factory".
Fast-forward to today and China’s labor costs match those of the West. China is now a service-based economy like the countries in Europe and North America. Covid just gave a final blow to China’s manufacturing strength.
Furthermore, US President Donald Trump’s trade war never ended. In many aspects, it got worse under Biden’s administration, especially in regard to modern chip manufacturing.
China’s support for Russia in its illegal invasion of Ukraine further deteriorated its relationship with the West. The same West that purchased cheap Chinese products. Tensions over and around Taiwan make China a dangerous geopolitical enemy of the West. In this light, a decrease in exports and overall trade from China becomes more understandable.
From now on, China will focus on internal demand, strengthening its hold on the Russian oil and gas industry and expanding its influence in the Middle East. And there is no coming back.
