Red Alert: Is China's recent export growth so exceptional that foreign officials & corporate executives should be losing sleep?

Before attention turned to the potential trade policy fallout from last month’s U.S. presidential election, the dominant trade policy theme concerned Chinese export dynamics. A drumroll of articles in leading business newspapers repeated accusations that China’s manufacturing sector was becoming too export dependent and that Chinese exports were flooding world markets.

Why does this matter? Because this drumroll has contributed to a sustained campaign to delegitimise the Chinese development model. If illegitimate, so the story goes, breaking global trade norms by taking protectionist measures against China is easier to rationalise. Of course, evidence could be marshalled to convincingly link specific Chinese policies and pervasive harm to trading partners. No such evidence has been provided this year—instead, selective industry examples are given. The plural of anecdote is not data, as old hands instilled in me at the start of my career in Washington, D.C.

Here I assemble information on the latest Chinese export expansion—which recently John Miller and I showed is better characterised as an export recovery from 2023 lows. First, I start with Chinese manufacturing export dependency.

Official Chinese manufacturing revenues and export data are now available for the first 10 months of this year. Therefore, the share of Chinese manufacturing sales garnered from exporting can be calculated. Doing so reveals, that for 2024, this share stands at 0.213, up a little from 0.206 during the first 10 months of 2023. Over three-quarters of Chinese manufacturing sales are still made to buyers at home.

How does a share of 0.213 compare to the United States? The necessary data to calculate the comparable American share can be found in the FRED official database, provided by the Federal Reserve Bank of St. Louis. Data for the first 10 months are available for 2023 and the comparable share of manufacturing revenues from exports is 0.232. This year so far manufacturing revenue data is only available for the first 9 months. Such data yields a 2024 export revenue share of American manufacturing of 0.235. The U.S. share is up slightly as well (2024 cf. 2023).

What’s remarkable is that the Chinese share is still below the American share—yet no one ever accuses the United States of pursuing an export-led growth strategy or of excessive manufacturing export dependence. This part of the China delegitimisation narrative should be dropped.

What of export growth dynamics? Here, thanks to the sterling work of the World Trade Monitor (WTM), it is possible to differentiate between changes in export volumes and in export prices.

First, I consider export volume growth. Normally when a writer paints a picture of Chinese exports flooding world markets, it is a surge in export volume that they have in mind. I pulled the monthly data on Chinese export volumes and that of Emerging Market East Asia (excluding China), rebased both series at 100 in January 2017, and plotted them. See Figure 1.

What is remarkable about Figure 1 is just how highly correlated Chinese export volumes are with those from the rest of East Asia, before and during the recent export growth phase (highlighted by the green shaded area in Figure 1.)

Figure 1: If China’s export volumes are surging, so are its emerging market rivals in East Asia.

There is nothing exceptional about China’s recent export growth. If anything, there is an East Asia-wide export growth dynamic among developing countries. Since the economic development models in that region are not carbon copies of China’s, it is difficult justifying singling out China’s model as the driver of the export performance.

Put differently, if the Chinese exports are currently flooding world markets, then why haven’t observers levelled the same criticism at other emerging markets in East Asia? China’s scale isn’t a credible retort: Excluding China, Japan, and Korea from the calculation, in 2022 the total value of exports by developing countries in East Asia outside of their region was 47% of the Chinese level. That is, big enough to be a concern.

Chinese exporters are often accused of charging too low prices or dumping products abroad. It may come as a surprise to learn that once the pandemic began Chinese export prices rose much faster than emerging market peers in East Asia (see Figure 2). By the start of 2023, Chinese export prices had risen 15 percentage points more than East Asian rivals, reflecting a shift towards more valuable products or enhanced pricing power.

Figure 2: Compared to East Asian rivals, China has given up all the export pricing power it gained during the COVID-19 pandemic.

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

What is also apparent in Figure 2 is that during 2024 Chinese firms slashed their export prices. Now the export price index for China lies below that of East Asian peers. As Figure 1 shows, Chinese export volumes have not raced ahead of East Asian rivals this year. Falling export prices and stagnant export volumes are not a great recipe for export-led growth. Later I return to the benefits of lower Chinese export prices to buyers in trading partners, including corporate buyers.

U.S. import price data for manufacturers from China and from all import sources confirms Chinese price cutting (see Figure 3). The shaded red area—which indicates the degree to which the prices of manufactures from China have fallen below that of others grows markedly in 2024.

Figure 3: The fall in prices of Chinese manufactured goods shipped to the United States is far larger than from other import sources.

Data source: FRED database, Federal Reserve Bank of St. Louis.

The World Trade Monitor reports import price indices for certain nations and several regions. It was possible to estimate how responsive an economy or region’s overall import price index was to movements in Chinese export prices since the start of the first Trump term (see the Table).

Worldwide, a 1% cut in Chinese export prices is associated with roughly a 1.1% fall in import prices. In short, this means the sharp falls in Chinese export prices this year would have placed considerable downward pressure on import prices and, in turn, this would have contributed to reducing unpopular high rates of price inflation.

European Central Bank officials have called attention to such effects in 2023 and 2024. As Table 1 shows, the estimated elasticity of Eurozone import prices to Chinese export prices is higher than average. Interestingly, the economy where Chinese export prices have the least incremental impact on import prices is the United States. Curiously, the economy most insulated from Chinese export price dynamics is the one most likely to act against Chinese exports.

Table: Sensitivity of import prices to changing Chinese export prices varies a lot.

Note: In this exploratory regression analysis the logarithm of the import price index of the importing nation or region was the dependent variable and was run against a constant and the logarithm of the Chinese export price index. Monthly data was used from January 2017. Data source: World Trade Monitor, September 2024 data (latest release available).

The recurring narrative of China as an unstoppable export powerhouse is misleading. China’s manufacturing sector is yet to catch up with U.S. levels of export dependence. Chinese export volume growth has not broken away from East Asian emerging market peers. What is distinctive is the sharp fall in Chinese export prices witnessed this year. Even there, China has only given up pricing gains won over the past 5 years.

Falling export prices will put those corporate rivals under pressure whose value proposition to customers extends little beyond bargain prices. Shoring up customer loyalty by differentiating on non-price attributes will be at a premium. This is well trodden territory for sophisticated firms.

For policymakers, in a year when many governments faced electorates angry about price inflation, an unsaid “thank you” may be a more appropriate response than jumping on the bandwagon to delegitimise the Chinese development model. The sooner evidence—rather than fear—drives policy in China’s trading partners the better.      

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.