About the author: He Weiwen is the Executive Director of China Association of International Trade, Executive Director of China Society for World Trade Organization Studies, expert of TMTPost International Think Tank, and senior researcher of the Center for China & Globalization. Previously he was the Economic and Commercial Counselor of the Consulate General in San Francisco and New York, the United States.

AsianFin--The latest statistics from the General Administration of Customs reveal a significant rebound in China's imports and exports in May 2024. Measured in U.S. dollar, the total import and export value reached $2,464.32 billion, marking a year-on-year increase of 2.8%, up 0.6 percentage points from the growth rate of the first four months. Exports in the first five months totaled $1,400.763 billion, representing a year-on-year rise of 2.7%, with May alone contributing $302.348 billion, a year-on-year increase of 6.6%. Imports in the first five months hit $1,063.553 billion, a year-on-year increase of 2.9%.

I. Exports to the U.S. and the EU see a remarkable increase in May

In May, exports to the U.S. totaled $44.016 billion, representing a month-on-month increase of 5.3% and a year-on-year rise of 3.6%. The cumulative export value in the first five months reached $528.192 billion, reflecting an annualized increase of 5.6% over the 2023 full-year figure of $500.291 billion and recovering to 90.8% of the historical peak of $581.783 billion in 2022.

Exports to the EU in May amounted to $44.189 billion, showing a year-on-year decrease of 1.0%. This significantly narrowed the year-on-year decline compared to the 4.8% drop in the first four months, reducing the cumulative year-on-year decline for the first five months to 3.9%. The annualized export value to the EU in May stood at $530.268 billion, which is 5.8% higher than the 2023 annual export value of $501.233 billion to the EU and 94.4% of the historical peak of $561.970 billion in 2022.

In May, the exports to Japan in the first five years fell by 1.6% year over year, while exports to South Korea rebounded with a year-on-year increase of 3.6%. The biggest growth to a region was observed in exports to ASEAN countries, which was 22.5% year over year in May, bolstering the year-on-year growth rate for the first five months to 9.7%. Vietnam led ASEAN nations by a robust year-on-year growth of 27.4% in May, contributing to a cumulative year-on-year growth rate of 22.3% for the first five months.

Due to the gradual improvement in exports to the above regions this year, especially the substantial rebound in May, the proportion of these traditional major markets in total exports from China has remained largely stable. The EU and the U.S. accounted for 14.6% and 14% of China's total exports, respectively, while ASEAN's proportion rose further to 16.8%. RCEP partners accounted for 27.7%. The EU, U.S., Britain, Japan, South Korea, Canada, Australia, and New Zealand accounted for a combined 46.9% of China's exports. The aforementioned nations and ASEAN and India imported 67.1%, or about two-thirds, of China’s total exports. If exports to Hong Kong is added, the figure hit 75.1%, or three-quarters of the total. This shows that the overall structure of China's major markets has not fundamentally changed.

In the first five months of 2024, trade volume with countries along the Belt and Road Initiative hit 8.31 trillion yuan, marking a 7.2% year-on-year increase and comprising 47.5% of the total import and export volume. By region, ASEAN accounted for 16.8%. Exports to Russia, Latin America, and Africa amounted to $41.789 billion, $106.399 billion, and $70.375 billion, respectively, totaling $218.563 billion or 15.6% of the total export volume.

A U.S. supply chain shift ?

(1) Total imports

In 2023, U.S.’ imports from Mexico and the European Union surged, in a stark contrast with declines across the East Asia-Pacific region. In particular, imports from China saw a steep decline, while those from Japan and South Korea stagnated, and imports from Vietnam sharply decreased. However, the first four months of 2024 indicated a turnaround, with steady imports from Mexico and the EU, and a robust resurgence in imports from the East Asia-Pacific region.

(2) Signs of adjustments in the supply chain of high-tech product imports and exports

In 2023, the import and export dynamics of advanced technology products (ATP) in the U.S. underscored significant shifts in global supply chains. According to data covering the first 11 months, U.S. global imports showed a marginal 0.3% year-on-year increase. Imports from the EU surged by 14.2%, contrasting sharply with a 20.7% decline in imports from China, which also dragged down imports from the Pacific Rim region by 9.5%. Meanwhile, U.S. global exports expanded by 6.9%. Exports to the EU surged by 26.4%, yet exports to China decreased by 9.5%, limiting the growth in exports to the Pacific Rim region to a modest 0.8%.

As we enter 2024, two distinct trends have become evident: firstly, exports to the EU have declined while imports continue to rise; meanwhile, trade with Canada and Mexico has shown robust growth in both exports and imports. Secondly, there has been a rebound in imports and exports with the Asia-Pacific region. The decrease in imports from China has substantially narrowed, while exports to China have experienced double-digit growth. Imports from South Korea and Taiwan have shown remarkable increases, with exports to Japan showing the strongest performance.

This indicates that the U.S. high-tech trade supply chain, which was primarily focused on the transatlantic region in 2023, is beginning to evolve into a more balanced distribution across North America, the transatlantic region, and East Asia.

II. Product Structure Analysis: Shored-up Weaknesses, Evolving Strengths

(1) The overall shift of traditional labor-intensive industries has not yet occurred. The performance in the first five months has been mixed across various sectors. Several categories have shown slight growth, including plastic products (8.5%), bags (1.6%), textiles (2.6%), clothing (0.2%), toys (0.2%), and lighting (4.6%) on a year-on-year basis. Conversely, footwear (-5.4%), ceramic products (-7.6%), and steel (-11.5%) have experienced negative growth. Furniture exports have seen a significant increase of 16.6%. Therefore, it cannot be concluded that the export of labor-intensive products has shifted to Southeast Asia and other regions. The substantial decline in steel exports points to overcapacity rather than a gradient shift.

(2) The export of traditional products shows mixed performance. Despite industrial shifts in recent years, home appliances, automatic data processing equipment, audio-visual products, LCD panels, and general machinery have generally maintained competitiveness in export. In the first five months, exports grew year-on-year by 14.0%, 6.1%, 5.6%, 11.4%, and 10.6%, respectively. Only mobile phone exports declined by 5.9%, which is both a result of the gradient shift and the suppression of Huawei by the U.S. and Western countries.

(3) The export of “new three” (i.e. new energy vehicles, lithium batteries, solar cells) is still eye-catching, despite a challenging outlook. During the first five months, car exports totaled 2.446 million units, marking a year-on-year increase of 26.8%. In terms of value, exports amounted to $46.427 billion, reflecting a 20.1% increase. However, the EU's imposition of additional tariffs on Chinese electric vehicles suggests ongoing and potentially heightened restrictions from the U.S. and Western countries.

(4) The export of “newest two” – integrated circuits and ships -- holds high expectations. In the first five months, the export value of integrated circuits reached $62.613 billion, marking a significant 21.2% year-on-year increase. This amount exceeded the export value of automobiles by 34.9%. Additionally, exports of ships totaled $17.03 billion, showing a substantial increase of 93.4%. Together, the combined total of these two categories amounted to $79.643 billion, exceeding the combined total of the “new three”. This underscores their emergence as a crucial new growth area for exports.

III. The Export is Still on a Recovery Path

In the first five months of 2024, although exports showed strong performance largely due to a low base last year, they still significantly trailed behind the levels seen in the same period of 2022.

As observed above, compared to the same period two years ago, exports in the first five months of this year have yet fully recovered. While the total export value has caught up, exports to Europe, Japan, and South Korea remain approximately 10% lower, and exports to the U.S. have declined by 17.3%. Achieving an annual export value of 90% of the 2022 level of $581.783 billion would require an average monthly export level of $46.817 billion for the remaining seven months, representing a 6.4% increase from May. Clearly, significant challenges persist going forward.

An important factor influencing this situation is the exchange rate. In terms of RMB, exports to the EU in the first five months of this year totaled 1452.39 billion yuan, up by 0.3% from 1447.39 billion yuan in the same period of 2022. Exports to the U.S. amounted to 1319.63 billion yuan, recovering to 87.5% of the 1509.75 billion yuan recorded in the same period of 2022.

IV. Observations and Proposals

(1) China’s trade with the three major trade blocs of the world remain stable, debunking the misconception of decoupling between China and the U.S. Against the backdrop of the U.S.’ promotion of geopolitical bloc formation and economic fragmentation in recent years, accelerated by the Russia-Ukraine conflict, trade growth in regions sharing common values (i.e. friendshoring) or proximity generally outpaces that in distant regions. Specifically, the strategy of decoupling and implementing a "small yard, high fence" approach towards China has posed significant challenges and uncertainties for our import-export trade. The U.S. has aimed to bolster supply chains across the Atlantic and North America while weakening those tied to East Asia, particularly China, with indications of a shift towards transatlantic and North American regions observed in 2023. However, there was a partial rebound in the first five months of 2024. This underscores the resilience of the East Asia-Pacific, Europe, and North America as the three principal trade blocs, reflecting a stable global distribution and flow of trade without fundamental alterations. Furthermore, it demonstrates China's robust integration into global industrial and supply chains, particularly within RCEP member countries, the EU, and the U.S., which further stimulates rapid trade growth between China and ASEAN. This reinforces the view that complete decoupling from China remains an unrealistic proposition.

(2) The movement of certain industries away from China to Southeast Asia, India, Mexico, and other regions persists, driven by cost and geopolitical factors. However, overall, this trend has not diminished China's critical role as a hub in the global supply chain. Whether in traditional labor-intensive goods or household appliances and electromechanical products, China's presence in the international market remains robust with no significant decline observed. Emerging as new growth drivers this year are the "new three," yet sustained rapid growth faces challenges due to constraints imposed by the U.S. and Europe. Meanwhile, industries such as semiconductor chips and shipbuilding are growing as newer growth points amid evolving global dynamics.

(3) Therefore, China should continue prioritize RCEP members, North America, and Europe as the regional focuses in foreign trade. In the first five months of 2024, North America, Europe (EU and Britain), and the other 14 RCEP countries represented 17.8%, 16.8%, and 27.7% of China’s total export value, respectively, totaling 62.3%. This figure rises to 70.3% when Hong Kong is included. These regions constitute China’s primary overseas markets and key sources of advanced technology and investment. Despite ongoing suppression and restrictions by the U.S. and G7 countries, China should continue to maintain and strive to advance trade relations with the U.S., Europe, and RCEP partners. We must persist in expanding openness, particularly by actively attracting investment and fostering cooperation with enterprises from the U.S., Europe, Japan, and South Korea. Efforts should be made to stabilize economic and trade relations with the U.S. and Europe. Facing these challenges, we should adopt a dual approach of resolute defense and pursuit of cooperative opportunities. Regarding the EU's tariffs on China’s electric vehicles, while firmly opposing the imposition of tariffs, we should engage in bilateral consultations to seek a WTO rule-compliant resolution that addresses both parties' concerns and promotes mutual benefits, instead of taking unilateral measures. Eleven years ago, China and the EU successfully negotiated an agreement on photovoltaic trade, averting a trade war through constructive dialogue. Similarly, we should strive for a positive outcome in electric vehicle trade that emphasizes dialogue and mutual understanding.

(4) We must maintain regular trade relations with Russia, although it constitutes a small portion of China’s overall import and export trade. However, it is crucial to exercise strict control over the export of products that can be used for both civilian and military purposes to Russia. Enterprises must rigorously oversee product category, while banks must closely monitor payments to prevent potential secondary sanctions imposed by the U.S.

(5) In the first five months of this year, imports and exports, particularly exports, has shown signs of stabilization and improvement, albeit remaining below recent historical highs. The external environment has become more uncertain. The latest PMI for May indicates that new export orders are still in contraction territory. Achieving stable export recovery and swiftly restoring trade with the three major regions to previous peak levels are fundamental expectations for 2024 and 2025.