Image source @Visual China

(Author's Introduction: He Weiwen is a standing director of the China Society for World Trade Organization Studies, a standing director of the China International Trade Association, an expert at the TMTPost International Think Tank, and a senior researcher at the Center for Globalization Studies. He has also served as an economic and commercial counselor at the Consulates General in San Francisco and New York. This article is an exclusive column for He Weiwen on the TMTPost App)

In 2023, China's total import and export volume reached 41.76 trillion yuan, an increase of 0.2% over the previous year. After stabilizing in the fourth quarter, positive growth was achieved. It was hard-won. Among them, exports were 23.77 trillion yuan, an increase of 0.6%; imports were 17.98 trillion yuan, a decrease of 0.3%. In 2023, in the face of a severe external environment, China's imports and exports still maintained a certain resilience. New export growth points emerged in new energy vehicles, lithium batteries, and solar cells, collectively surpassing 1 trillion yuan.

However, when converted into US dollars, the growth was negative across the board. The total import and export volume was 5936.83 billion US dollars, down by 5.0%; among which exports were 3380.02 billion US dollars, down by 4.6%; imports were 2556.802 billion US dollars, down by 5.5%. Net exports contributed negatively to the GDP growth for the entire year of 2023.

I. Basic Pattern of China's Imports and Exports: Comprehensive Decline with Traditional Developed Countries, Deterioration of Trade Structure

(I) Regional Pattern

In 2023, trade with countries jointly building the Belt and Road Initiative grew by 2.8%; among them, bilateral trade with Russia increased by 26.3%, reaching 240 billion US dollars. However, this was not enough to compensate for the significant decline in trade with traditional developed countries such as the United States, the European Union, Japan, and South Korea. Trade with the aforementioned decreased by 11.6%, 7.1%, 10.7%, and 13.5%, respectively. Exports, in particular, decreased by 13.1%, 10.2%, 8.4%, and 7.2%, respectively. The decline in exports to the United States and the European Union both reached double digits, more than twice the global export decline of 4.6%. Especially noteworthy is the 13.1% decline in exports to the United States, which exceeds the declines during the global financial crisis in 2009 and after the imposition of tariffs by Trump in 2019 (both at 12.5%), marking the largest decline since the establishment of diplomatic relations between China and the United States 45 years ago. It is worth noting that as China's largest trading partner and a major partner in jointly building the Belt and Road Initiative, ASEAN also saw a decline in trade with China in 2023. Bilateral trade, exports, and imports decreased by 4.9%, 5.0%, and 4.8%, respectively, roughly the same as the overall decline in China's global trade (which decreased by 5.0%, 4.6%, and 5.5%, respectively). See the table below:

Source: General Administration of Customs, Statistical Express, www.customs.gov.cn

In 2023, China's exports to the European Union, the United States, ASEAN, Japan, and South Korea totaled 18317.09 billion US dollars, accounting for 54.2% of the total export volume. The conditions of these markets largely determine the state of China's exports. Exports to Russia and Africa totaled 2837.54 billion US dollars, accounting for 8.4% of the total export volume; their impact on the overall export situation is limited.

In 2023, imports decreased by 5.5% compared to the previous year, mainly from the United States, Europe, Japan, South Korea, and ASEAN; growth mainly came from Russia, Australia, Canada, and Brazil. See the table below.

Source: General Administration of Customs, Statistical Express, www.customs.gov.cn

Similar to the export pattern, the growth in imports from Russia and other places cannot offset the decline in imports from the US, Europe, Japan, South Korea, and ASEAN.

(II) Product Structure Pattern

1. Exports: Most categories of exports have declined, and the emergence of new growth points has slowed this decline, but it does not change the overall situation. See the table below.

Source: General Administration of Customs, Statistical Express, www.customs.gov.cn

The comprehensive decline in exports of traditional labor-intensive products indicates that the overall trend of industrial transfer has become clear. The export of mechanical and electrical products only decreased by 2.4%, which is half of the total export decline, mainly due to the surge in exports of automobiles and ships. However, this does not change the sharp decline in high-tech exports, which fell by 10.8%, more than double the total export decline. This indicates that due to the widespread decline in exports to developed countries, the structure of export products has deteriorated.

2. Imports: Main growth comes from energy and primary products, structural deterioration

The growth in imports in 2023 mainly comes from energy and other primary products, with a significant decrease in imports of mechanical and electrical products and high-tech products. See the table below.

Source: General Administration of Customs, Statistical Express, www.customs.gov.cn

Similar to the export pattern, the comprehensive decline in trade with developed countries has further led to the low-end structure of imported products. Another reason is the insufficient domestic demand and some overcapacity, which in turn suppresses import demand.

II. Partial Shift and Shortening of the Global Supply Chain

The decline in China's imports and exports in 2023 is certainly related to insufficient overseas and domestic demand, as well as the gradient transfer effect of labor-intensive products. However, that is not the main reason. The most important reason is the developing trend of global geopolitical tensions, polarization, and the fragmentation of the geo-economic landscape. This can be confirmed by various sets of data and common indicators.

(I) Partial Shift of the US Supply Chain

Figures from the US Bureau of Economic Analysis show that in the first 11 months of 2023, the US imported goods worth $2,836.96 billion from around the world, a decrease of 5.1% compared to the same period last year, a net reduction of $153.004 billion. Of this, imports from North America (Canada and Mexico) amounted to $826.713 billion, an increase of 0.5%; imports from the European Union amounted to $528.299 billion, an increase of 4.7%; imports from the Pacific Rim region decreased by 12.0%, a net reduction of $117.353 billion. That is, three-quarters of the decrease in US imports came from the Pacific Rim region. Of the net decrease from the Pacific Rim region, 90.3% was from China, a net reduction of $105.943 billion. China has fallen from being the largest trading partner of the US and the largest source of imports in 2020 to the fourth position, below Mexico, Canada, and the European Union. Clearly, the US is in the process of partially moving its supply chain out of China and East Asia, and towards North America and across the Atlantic.

The changes in the trade pattern of US Advanced Technology Products (ATP) further corroborate this situation. See the table below.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, www.bea.gov

In the first 11 months of 2023, the global export of U.S. high-tech products increased by 6.9% year-over-year. Among these, exports to the European Union surged by 26.4%, while exports to China fell by 9.5%. During the same period, global imports remained roughly flat (up 0.3%). Imports from the European Union increased by 14.2%, while imports from the Asia-Pacific region decreased by 9.5%, resulting in a net decrease of $26.28 billion. However, the entire reduction in imports from the latter came from China, with a net decrease of $28.59 billion, a decline of 20.7%.

(II) The Relative Decline in Intermediate Goods Trade

Since trade between nodes in the supply chain is more reflected in intermediate goods, the changes in trade and proportion of intermediate goods are important indicators of the state of the supply chain. In 2023, the import and export of intermediate goods in major countries and regions generally showed negative growth, indicating a weakening of the supply chain.

Source: GTF, cited from China International Electronic Commerce Center, Ministry of Commerce Big Data Service Department "Weekly Foreign Trade Observation" Issue No. 190

(III) General Reduction in Imports from Asia by the US and Europe

Source: GTF, cited from China International Electronic Commerce Center, Ministry of Commerce Big Data Service Department "Weekly Foreign Trade Observation" Issue No. 190

The table above shows that in the first 11 months of 2023, the total imports of the United States from 8 countries decreased by 3.4%. Among them, imports from Asian countries declined across the board, with imports from the four countries of Vietnam, Malaysia, Myanmar, and Indonesia all experiencing double-digit decreases; whereas imports from the North American neighbor Mexico and from Poland in Europe showed positive growth. The import pattern of the European Union is similar. See the table below.

Source: GTF, cited from China International Electronic Commerce Center, Ministry of Commerce Big Data Service Department "Weekly Foreign Trade Observation" Issue No. 190

A commonality between the United States and the European Union is the reduction in imports from Asia and an increase in imports from Mexico. The EU's imports from Africa and South America mostly declined.

III. World Geopolitical Division and Geo-economic Fragmentation

The reasons for the decline in China's imports and exports are certainly related to market demand and product competitiveness, but the trend of geopolitical and geo-economic fragmentation plays a significant role. This trend is still intensifying, thus posing a serious challenge to the external environment of our imports and exports.

The United Nations Conference on Trade and Development recently released a report estimating that the global merchandise trade volume is expected to decrease by 5% in 2023, with a net reduction of about 1.5 trillion US dollars. The main reasons are geopolitical tensions and shifts in trade patterns. From the first quarter of 2022 to the third quarter of 2023, the cumulative trade volume between neighboring countries increased by 6.4%; trade between more distant countries decreased by 4.3%, and trade between even more distant countries decreased by 5.1%. Countries are increasingly showing a preference to trade with partners that are politically aligned, a trend known as "friend-shoring." Over the three years from 2020 to 2022, an average of more than 5,400 trade and investment restrictive measures were introduced each year, almost double the number before the pandemic.

The Managing Director of the International Monetary Fund, Kristalina Georgieva, pointed out that if the world were to be divided into two major camps led by the United States and China, the world's GDP would decrease by 5%, equivalent to the economic output of Japan.

The World Bank released its Global Economic Prospects report on January 9, 2024, predicting that the global GDP growth rate for 2024 will be only 2.4%, lower than the 2.6% in 2023, making the first half of the 2020s (2020-2024) the weakest half-decade of growth in 30 years. The continuous rise in geopolitical tensions will bring new damage to the short-term global economy. It is expected that the growth rate of world trade in 2024 will only be half of that in the decade before the pandemic. The report also predicts that the GDP growth rate for developing economies in 2024 will be 3.9%, one percentage point lower than the average growth rate over the past decade. By the end of 2024, one-quarter of developing countries and 40% of low-income developing countries will have growth rates below those on the eve of the COVID-19 pandemic.

The World Bank's Vice President and Chief Economist, Indermit Gill, believes that unless there is a significant correction in the development trajectory, the 2020s are likely to be a "lost decade".

IV. Estimates and Policy Recommendations

(I) Basic Estimates

1. In 2024, the trend of de-globalization will continue. If Trump wins the election, this trend will be further strengthened. At least in the medium term, geopolitical tensions and geo-economic fragmentation in the world, as well as the politicization of global supply chains, will profoundly affect the world economy, trade, and cross-border investment. This will first be reflected in the shortening and regionalization of "resilient" supply chains for chips, electronics, and communication products and components. It will soon also be reflected in new energy vehicles, advanced materials, and basic mineral products.

2. The United States will expand its political and ideological opposition to China into national relations, thereby maintaining its positioning of China as its greatest geopolitical challenge. The interactions between the leaders of China and the United States and officials at all levels, especially the San Francisco vision, have clearly stabilized the relationship between the two countries. 2024 may be a window of opportunity for the continued stabilization and incremental improvement of bilateral relations. However, this does not mean that the United States has fundamentally changed its basic strategy towards China. Therefore, the basic stance of the United States to decouple from China to a certain extent, while maintaining general trade and investment and framing it within the narrative of national security and high walls, will continue. The European Union and Japan share basic values with the United States and have different strategies towards China, but their basic positions are consistent. China's trade and investment with developed countries will continue to be restricted.

3. The geopolitical-driven fragmentation of the geo-economy has already and will continue to profoundly affect the future import and export space of our country. This is the first reason for the decline in our country's exports to developed countries. The second reason is the gradient transfer based on economic laws, where the competitive advantage of traditional labor-intensive industries is continuously moving out of our country. Looking at the fourth quarter of 2023, the decline in exports to developed countries is weakening, but the trend remains unchanged. Affected by the shift in supply chains, exports from Asia to Europe and America are also generally experiencing negative growth, which in turn affects our country's imports and exports to ASEAN. However, leaving or significantly reducing supplies from Asia, the transatlantic supply chain itself is incomplete and thus unlikely to be sustainable. Therefore, changes are inevitable, but they will take some time.

4. Since the research, development, production, and sales of advanced and emerging industries such as semiconductor chips and new energy vehicles are global, involving many countries, they ultimately cannot be resolved by "values." China is the largest trading partner of more than 140 countries and is also a major trading partner of the US, Europe, and Japan, with the most complete industrial system, making it fundamentally impossible to decouple from China. Our country's trade and investment cooperation with developed countries still have a solid foundation.

(II) Policy Choices

1. The regional and country-specific policies for foreign trade and industrial policies must be subordinate to and serve the construction of Chinese-style modernization, which is the greatest political task, and the steadfast commitment to the national policy of opening up must not waver. Our country's import and export trade is an integral part of the national economy; our trade relations with various countries and regions are part of our foreign relations. The 20th National Congress of the Communist Party of China has set the task of comprehensively advancing the construction of Chinese-style modernization as the central task and the greatest political mission of the entire Party and country at present. The goal set by the 20th National Congress is to basically achieve socialist modernization by 2035, with GDP per capita reaching the level of moderately developed countries. In 2022, China's GDP per capita was $12,720. The GDP per capita of developed countries, based on the lowest few countries in the OECD (excluding Mexico and Turkey) – Czech Republic, Slovakia, and Slovenia – averages $25,600. Based on the growth rate of the past thirteen years, by 2035 it will exceed 3 trillion US dollars. In other words, by 2035, China's GDP per capita needs to reach 30,000 US dollars, with a total volume of 42 trillion US dollars, an increase of 24 trillion US dollars, nearly the size of the United States. Therefore, we must closely track the world's cutting-edge technologies such as artificial intelligence, digital economy, quantum computing, etc., absorb all the excellent knowledge, technology, and resources in the world, and greatly improve labor productivity to achieve this goal with the development of new quality productive forces. This requires us to steadfastly implement the national policy of opening up and actively develop cooperation with the whole world. Since advanced technology is still mainly concentrated in developed countries, we must strive to stabilize and improve trade and economic relations with the United States, Europe, and other developed countries, and strive for a stable and favorable international environment.

2.Resolutely avoid falling into the division of two camps. Both the Western countries led by the United States and the Global South are our targets for actively developing trade. Without relaxing the development of trade with the countries along the Belt and Road Initiative, with Russia, and with the countries of the Global South, we should also unrelentingly develop trade with developed countries.

3. In terms of industry, drive the upgrade of the import and export structure with generative artificial intelligence, big data, and other technologies. The trend of declining high-tech exports as a proportion of total exports should be curbed as soon as possible. We should seek breakthroughs in the world's latest cutting-edge technologies and scenarios to find new growth spaces and markets, circumventing the United States' "small yard high wall" blockade. By insisting on independent innovation and rapidly improving the technical level and market share of chip self-sufficiency, we can attract European and American multinational companies to continue to stay in the Chinese market and force the US government to partially change its technology blockade and trade restrictions against us. The growth points of imports should shift from fossil energy and other primary products to high-tech fields, and we should strive to optimize the import structure to meet the needs of Chinese-style modernization construction.

4.In terms of geography, we have basically maintained that RCEP, G20, and other APEC members account for over 60% of our export share. Among them, we will appropriately increase imports from Europe and America to promote exports. We aim to attract and encourage multinational companies from Europe, America, Japan, and South Korea to operate in China and strive to expand investment, to participate more deeply and consolidate the supply chains of products such as chips, new energy vehicles, lithium batteries, photovoltaic cells, etc., using complete supply chains to promote the stability and expansion of trade.

Looking at the situation in the fourth quarter of 2023, the downward trend in exports has been easing. With efforts in 2024, the value of imports and exports in RMB will continue to grow, and it is also possible that the value in USD will turn to positive growth. If our country's judgment of the situation is basically in line with reality and the measures are basically appropriate, the import and export situation is likely to continue to improve and make a positive contribution to the development of the national economy.

(Author Introduction: He Weiwen is the Executive Council Member of the Chinese Society of International Trade, Executive Council Member of the China WTO Research Association, TMTPost International Think Tank Expert, Senior Research Fellow at the Center for Globalization Studies, Research Fellow at the China Institute of International Studies Foundation under the Ministry of Foreign Affairs, and an expert in external communication for the State Council Information Office. He is also the Senior Vice Chairman of the Global SME Alliance. He has previously served as Economic and Commercial Counselor at the Consulates General in San Francisco and New York. He has long been engaged in research on the world economy and trade, China-US economic and trade relations, globalization and global governance, WTO, the US economy, the Belt and Road Initiative, and China's foreign opening-up policies. He has systematic and in-depth research, especially on the US economy and China-US economic and trade relations. This article is an exclusive column work for He Weiwen on the TMTPost App)

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