Despite the twin impacts of the pandemic and the US-China trade war, economic indicators suggest that China will continue to grow rapidly through the next year and will be one of the biggest contributors to global trade growth in 2022.
Indeed, in some ways, the current trajectory of China’s economic growth and trade surplus – both highly positive – is a return to normal. Though many feared that the pandemic and the US trade war would cause long-term, structural damage to China’s trading and economic infrastructure, it appears that this was not the case. In fact, changes to the way supply chains work may mean that China is now in a stronger position than it was at the beginning of the pandemic – a luxury that other countries can only dream of.
In this article, we’ll look at the most recent economic indications from China, explain what they mean for global trade, and see how analysts and governments in the West are responding to these signs.
Positive indications
First, let’s look at the state of the Chinese economy. Here, the news is very positive. On almost any measure that is commonly used as a proxy for consumer demand – the Purchasing Managers’ Indexes (PMI), electricity consumption, bank lending, etc. – the Chinese economy is booming.
Though many analysts expected that consumer demand would be significantly down in 2021, in actuality, China is experiencing strong demand in both domestic and foreign markets. The Chinese government continues to invest heavily in making China a tech superpower, and so far, they are mostly succeeding.
There are some complexities hidden behind this headline, though. One is that China has seen heavy food price inflation over the past few months driven, in part, by the US-China trade war. For many households in the country, food makes up a sizable proportion of the household budget.
On the other hand, it seems that the pandemic has not affected the Chinese economy to anywhere near the degree that some experts expected. The transition to remote working for office workers, for instance, went more smoothly than had been predicted and occurred without a net loss to the economy. This was the case in some other countries too – remote workers contributed $1.2 trillion to the US economy alone last year, a 22% increase from 2019 – but it was especially pronounced in China.
Increased foreign trade
Since both domestic and foreign demand for Chinese goods remains high, we are likely to see China’s share of global trade increase over the next year. This is also a continuation of the pre-pandemic trend, which saw gradually increasing volumes of high-value finished goods being exported from China.
When it comes to global trade volumes, the picture is not completely positive, however. Though demand for Chinese goods remains high, the pandemic has imposed new restrictions and complexities on exporters. This is likely to slightly reduce trading volumes over the next year. That said, China is already a titan when it comes to global trade, and a slight reduction in growth is not likely to affect that.
Liang Ming of the Chinese Academy of International Trade and Economic Cooperation predicted that the country’s total foreign trade will be near five and a half trillion by the end of 2021. In fact, since that prediction was made, market conditions have only grown more positive for Chinese exporters.
Many manufacturers in the country have used enforced lockdown periods to update and improve their logistics and supply chains for the post-Covid world, and many of their trading partners have come out of the pandemic more quickly than expected.
Calls for decoupling
All this is great news for China, and specifically for Chinese exporters. It might not be such good news, however, for the countries that buy goods from China. This includes the US and the majority of European nations, all of whom are heavy consumers of Chinese-made goods. Many analysts are alarmed at the growing dominance of China in global trade, pointing out that this could be dangerous for the world’s privacy and safety.
The numbers are certainly impressive. Official data released from the Chinese government in July 2021 showed that for the first half of the year the country’s foreign trade surged to 18.07 trillion yuan, equal to roughly $2.79 trillion USD. This was despite many industries being affected by the US trade war and despite calls in the US for the country to transition away from its dependence on China.
There are other concerns about granting China a larger portion of the global economy. Specifically, concerns about the privacy of data collected by Chinese companies remain high, as do concerns that Chinese banks are being used to launder money on behalf of Mexican and Colombian drug cartels.
All of these concerns have led some think tanks to call for a “decoupling” from the Chinese economy. This would involve selected trade embargos in order to promote domestic production of consumer items in Western economies and to give these economies time to make back some of the gap that is opening in global trade.
Conclusion
Ultimately, the trajectory that China now finds itself on – with a growing economy and a rapidly increasing trade surplus – has been the norm for much of the last two decades. And if a global pandemic and a US-directed trade war has been unable to stop the growth of the Chinese share of global trade, it’s unlikely that anything will.
