Rising Trade Surplus Brings Mixed Blessings (AI Translation)

【周刊提前读】贸易顺差攀升亦喜亦忧 聚焦产能出海与扩大国内需求

Exports have become increasingly vital to China’s economic growth amidst downturns in real estate and weak domestic demand. In the first half of 2024, net exports contributed 13.9% to economic growth, boosting GDP by 0.7 percentage points, as opposed to a negative impact in 2023. This has raised concerns about growing trade imbalances and a potentially worsening external environment [para. 1].

The Third Plenary Session of the 20th Central Committee of the Communist Party of China emphasized addressing these external challenges. Li Yongjian, Deputy Representative for International Trade Negotiations, outlined the increasing severity of the external environment, exacerbated by recent increases in tariffs on Chinese goods by Western countries and uncertainties surrounding the U.S. presidential election [para. 2][para. 3].

Since mid-2023, the U.S. and Europe, followed by Brazil, Canada, India, Turkey, and Mexico, have initiated measures to restrict Chinese exports, particularly in fast-growing sectors like electric vehicles and lithium batteries. The prospect of Trump being re-elected and intensifying the trade war adds further uncertainty. Analysts suggest China's cautious economic policies are partly reserved for this eventuality, assuming a decline in exports could trigger these reserved policies [para. 3][para. 4].

China’s economic rise as the world’s second-largest economy and largest exporter means its surpluses now have different global impacts. Jens Eskelund, President of the European Union Chamber of Commerce in China, noted that even minor changes in China’s trade can significantly affect other countries. Trade imbalance has been highlighted as a severe macroeconomic issue [para. 5][para. 6].

China's trade surplus has continually hit new peaks post-pandemic, reaching $636.6 billion in 2021 and $837.9 billion in 2022. Although there was a slight decline in 2023, the trade surplus for the first seven months of 2024 was $518 billion [para. 8].The rise reflects China's competitive manufacturing but underscores structural issues such as heavy investment and weak consumption [para. 9], which scholars suggest addressing by diversifying beyond exports to investing globally and building an international production system based on Gross National Product (GNP) [para. 10].

Following examples from Japan and Germany, which transitioned from trade surpluses to capital-exporting economies, Kazuhira Kaway states China should adapt [para. 11]. Structural policies should focus on altering local government incentives, enhancing public services, breaking down service industry entry barriers, and advancing financial reforms [para. 12].

An increase in restrictive trade measures globally, with the WTO indicating significant 2024 import restrictions impacting $2.3 trillion worth of imports, has propelled export restrictions on key Chinese products like electric vehicles and solar cells [para. 14]. Potential measures under a possible Trump administration, such as a 60% tariff on Chinese goods, could significantly impact China’s GDP [para. 16].

The shift in global perspectives on globalization has fueled trade frictions, with economists like Angus Deaton questioning the benefits of globalization. This change is driven by industrial concerns in Europe and the US over the rapid rise of Chinese exports in new sectors [para. 18][para. 19].

The increase in China's trade surplus post-pandemic is attributed to supply gaps abroad filled by Chinese exports. Despite recovering global production, Chinese exports sustained their growth due to rerouted exports and maintaining value-added components in trade [para. 21][para. 23]. However, insufficient domestic demand, exacerbated by real estate downturns and local government debt restructuring, has also driven this surplus [para. 23][para. 27].

Addressing structural issues and focusing on boosting domestic demand through macroeconomic and fiscal policies are essential. Encouraging spending and improving social security could help. Huang Yiping suggests China might need a "Green Marshall Plan" to support developing countries purchasing Chinese products, alleviating overcapacity issues [para. 45][para. 46].

Beyond short-term policies, long-term structural reforms to ensure fair competition, improve public services, and reallocate fiscal resources are crucial. Such measures could potentially balance trade relationships and foster stronger domestic consumption [para. 46][para. 47][para. 49]. Expanding internationally and establishing a global production system are pivotal [para. 52][para. 53].

Overall, China’s export strategy, facing rising global trade barriers, relies on domestic policy adjustments and international investments, aligning with past strategies of Japan and Germany to manage trade surpluses and sustain economic growth [para. 54][para. 55][para. 56].