Access to the Chinese Market: An Obsolescing Bargain?

Before the U.S. presidential election, this year’s most salient trade policy narrative centred on Chinese export dynamics. In other briefings [1] I have presented evidence showing this narrative and its attempt to delegitimise the Chinese development model are unconvincing. However, all is not well in Chinese trade as this briefing, which focuses on import outcomes, shows.

Foreign access to a nation’s markets is the currency of trade negotiations. Reciprocal access and associated commercial outcomes are important factors in assessing whether prior trade deals have been mutually beneficial. There are reasons why the value of imports into an economy falls that have nothing to do with protectionism and deal breaking. However, the latter possibilities exist and, in our suspicious era of intensifying geopolitical rivalry, rarely is the benefit of the doubt given. In these situations, dispassionate assessments grounded in data that involve benchmarking across peers and time can add important context and insight.

The focus here will be on sales by foreign firms trying to import into China. Sales by subsidiaries of foreign multinationals—which are important—are out of scope. As far as the latter is concerned, according to the most recent edition of The Economist: “According to our analysis, the sales in China of listed American and European companies that disclose them peaked at $670bn in 2021, accounting for 15% of those firms’ total revenue. Things have gone south since. Last year sales were down to $650bn; their share of total revenues slipped to 14%.” Bear in mind that between 2021 and 2023 the Chinese currency depreciated 9.8% against the US Dollar. With 2% cumulative consumer price inflation, in fact the local currency value of these foreign firms’ total sales had risen in real terms around 4.5%. Not galloping growth, but not a disaster either.

According to official Chinese sources, in 2023 the total value of Chinese goods imports was $2.56 trillion. Of that, $465.9 billion was imported from America and Europe. By contrast, imports from ASEAN totalled $388.0 billion and from North East Asian neighbours $521.7 billion. Imports worth around a quarter of a trillion dollars were sourced from Latin America. Simply put, many trading partners have a stake in Chinese market access.

As in my Chinese export dynamics briefings, I employ the latest monthly World Trade Monitor data, this time focusing on import volumes and prices. I also benchmark Chinese performance against emerging market peers from East Asia. For most of my analysis I keep the same time frame as before: from the first Trump term on.

Figure 1 reports monthly data on Chinese, East Asian, and emerging market import volumes. A break around the pandemic is evident. East Asian emerging market firms have seen sustained import volume growth in the years since the 2020 slump. In contrast, Chinese import volumes recovered until 2021 and have stagnated ever since. The divergence in these two time series is remarkable and has no parallel in the export volume data.

Interestingly, import volume data for all emerging markets don’t grow as fast as East Asian emerging markets (excluding China). [2] Still, the former is still growing---in China import volume growth has ground to a halt. On this criterion, in recent years Chinese import volume behaviour has been unusual.

Figure 1: Chinese import volume has been flat for three years—unlike in East Asian peers.

As shown in Figure 2, Chinese import price data rises and falls in line with East Asian emerging market peers and emerging markets in general—until 2024. Import prices fell from mid-2022 to the start of 2024 and then began to recover in East Asia and in emerging markets in general. But not in China. Somehow foreign exporters were able to sustain price increases in East Asian emerging markets but could not do so in China.

Combining the import volume and price data for China, seen from the vantage point of foreign firms shipping goods to China, falling Chinese import prices means their stagnant sales volumes in China translated into lower revenues during much of 2022 and 2023. Once Chinese import prices stagnated in 2024, this put a ceiling on the value of market access to foreign suppliers. The sense that China is not the growth market of yesteryear comes through clearly in this data.

Figure 2: This year has seen a marked divergence in Chinese and East Asian import prices.

Data source: World Trade Monitor, September 2024 data (latest release available).

The level of Chinese import prices reflects many factors that have nothing to do with trade and industrial policy—including commodity prices. What is of interest here is whether, once the effects of fundamental drivers are stripped out, observed Chinese import prices are currently unusually or too low. I explain in the Box at the end of this briefing how this analysis was conducted. Here I focus on the results.

Figure 3 reports the deviation Chinese import prices from fundamentals since 2012 [3]. Going back before 2017 permits a comparison of Chinese import price behaviour today with the years 2015 and 2016, when there were concerns about Chinese economic growth. Interestingly, then and now, Chinese import prices fell significantly below levels suggested by fundamentals. In both cases, something has meaningfully squeezed the Chinese import bill.

Figure 3: The past two years have seen Chinese import prices fall systematically below levels forecast by fundamentals by approximately 5-7%.

That Chinese import volume growth ceased after the early years of the COVID-19 pandemic raise the question as to whether structural—not cyclical—measures have been taken by the Chinese authorities to encourage domestic sourcing. That Chinese import prices have now fallen significantly below fundamentals also begs the question as to whether Chinese state support for import-competing firms and for local manufacturers in general is further depressing prices in Chinese markets beyond that generated by weak demand.

To be clear, I have not presented evidence here that demonstrates that Chinese industrial and trade policies are responsible for the Chinese import outcomes. But given the longstanding interest of trade policymakers in access to foreign markets, concerns clearly arise. Rather than speculate about Chinese export dynamics and their apparent link to Chinese overcapacity, as so many Western officials have done, more scrutiny of China’s track record on importing is in order.

Understanding why import volumes and prices are currently stagnating is important for corporate executives too as they make plans for 2025 and beyond. If the factors depressing Chinese sales are structural then this will cast a longer shadow than if the drivers are short-term macroeconomic responses. Clearly, sectoral circumstances differ and matter and they will overlay any structural or short-term factors at work. 

Chinese officials ought to reflect on these findings too. Should access to China’s market deliver less and less to foreign firms, then more foreign policymakers and corporate executives will question whether the bargain agreed at the time of China’s accession to the World Trade Organization (WTO) still applies.

Trade officials should not make the mistake of thinking that the issue here is only a legal matter---market access must convert into commercial gains if executives are to see value in current trade arrangements. Should they conclude that the original WTO bargain has obsolesced then resisting protectionist pressures against Chinese exports will be harder.

In sum, large trading nations that prize stable, open trade arrangements should be mindful of the extent of commercial gains made through importing. After all, there were good reasons why for decades the term “market access” has been central to the conduct and logic of trade relations.

Box: Decomposing Chinese import price movements using an autoregressive distributed lag (ARDL) model.

Having controlled for plausible determinants of Chinese import prices, the goal here is to determine whether observed (actual) Chinese import prices diverged much in recent years from levels predicted by fundamental drivers. If actual import prices fell below then it implies that a decline in the total value of foreign revenues associated with each volume of imports and along with it the contemporaneous value of goods market access to the Chinese economy. Nothing in the methodology employed here ensures that there are departures from fundamental levels, that those departures are large, or that they must be positive or negative.

The World Trade Monitor reports monthly observations on Chinese import price levels and on four plausible drivers, namely, export prices for higher per-capita income economies, export prices for emerging markets, fuel prices, and commodity prices other than fuel. Monthly data was extracted for the period 1 January 2011 on (thereby avoiding the Global Financial Crisis) until September 2024. The import and export prices are index measures, whereas the other two variables are in USD dollars. All variables are normalised to 100 in January 2012 and converted to logarithms.

Given that it may take a few or several months for external drivers to affect the observed level of Chinese import prices and given that the exact length of lags involved is unknown to me, I employed a ARDL model. I let the data tell me which lag structure best fit the data (using the Akaike information criterion). It turns out that lagging foreign export and commodity prices by four months fits the data best. That ARDL regression also yields a Durbin-Watson test statistic (of 2.1), allowing concerns that the resulting regression residuals are autocorrelated to be set aside. The sum of the estimated regression coefficients for high per-capita income export prices, emerging market export prices, fuel prices, and other commodity prices were all positive: 0.083, 0.016, 0.007, and 0.055, respectively.

With these regression coefficients and one for the constant of the regression, it was possible to calculate the estimated regression residuals; that is, the difference between the observed value of Chinese import prices and the level predicted by the four independent variables. The latter level can be thought of as the “fundamental level” of Chinese import prices. Departures from fundamental levels could be due to other factors including, but not exclusively, hidden forms of protectionism that forces foreign firms to lower their export prices to win orders from Chinese customers. Figure 3 plots the residuals for each observation and for the cumulative sum over the past 12 months, which gives a sense of the cumulative departure from the norm. Further details about this regression and empirical approach are available upon request.

Simon J. Evenett, an international trade economist, is Professor of Geopolitics & Strategy at IMD Business School, Switzerland. He is also Founder of the St. Gallen Endowment for Prosperity Through Trade, home of the independent monitoring initiatives Global Trade Alert, Digital Policy Alert and the New Industrial Policy Observatory and Co-Chair of the World Economic Forum’s Global Futures Council on Trade & Investment.