China has grown its share of electronics exports significantly over the past decade
The strength of China’s economic activity in 2017 has surprised many, not least in exports. After contracting by 7.7 per cent in 2016, exports grew 8.5 per cent year-on-year in the first six months of this year.
Demand in overseas markets has picked up, led by developed economies, but China’s export composition has changed too. During the downturn in global trade, its exporters quietly but rapidly moved away from traditional labour-intensive goods to machinery and electrical products. This has allowed China to benefit from the cyclical upturn since mid-2016.
Global trade growth started to slow in 2011 but China has steadily increased its share of world trade from 10 per cent in 2007, before the financial crisis, to 12 per cent by 2012 and more than 14 per cent last year. That this continued in 2014-16, when global exports contracted by an average 5.5 per cent a year, demonstrates the structural nature of the change.
Increasing technological sophistication has helped China capitalise on the rebound in global demand
So what about last year, when China’s export market share seems to have flattened? The renminbi depreciated by 5.9 per cent against a basket of currencies in 2016, the biggest depreciation since 2003, with the sharpest underperformance against emerging-market currencies.
This likely affected the overall value of the country’s sales abroad, but China has held on to its export market share – estimated at 20.1 per cent in the top ten markets.
Structural transformation of China’s manufacturing sector includes continued learning to move up the value chain. Its global market share in low-technology textile and footwear products peaked at more than 35 per cent in 2007, before the financial crisis; medium-tech exports such as metal-based tools also grew sluggishly after the crisis. However, the market share in high-tech products rose sharply both before and after 2007.
The share of global exports in electronics and electrical products, for example, rose from 7.6 per cent in 2000 to 25 per cent post-crisis, increasing to 34 per cent in 2016, despite the severe downturn in global trade.
Especially striking is the rise in engineering equipment, household appliances, and railway vehicles from single-digit shares in 2007 to double digits in 2016.
The increasing technological sophistication of China’s export products demonstrates its continued move up the value chain and has helped the country capitalise on the rebound in global demand. China would have missed the cyclical upturn had it stuck with its traditional low value-added and labour-intensive apparel and footwear business.
This structural transformation should continue to support China’s exports in the medium term, but the closer integration with emerging markets has also helped. China’s imports from these countries have strengthened their economies, creating a strong and virtuous cycle.
Growth and rising incomes in emerging markets lead to more middle-class consumers and increased demand for machinery and tech goods, with China’s cheaper and simpler products proving attractive. China’s export market share in emerging markets rose from 16.7 per cent in 2012 to 20.8 per cent in 2016.
Initiatives such as the ‘One Belt, One Road’ project mean China’s connection with emerging markets will strengthen further and should provide key support to its exporters in the coming years.
This research was first published on 27 July 2017.