Economy

China, From Shrinking Exports To Currency Devaluation

Workers producing glasses cases in a factory in Hebei Province
Workers producing glasses cases in a factory in Hebei Province
Fan Junlin*

-Analysis-

BEIJING â€" The numbers are decidely mixed. Year-on-year, China’s exports fell in September by 10%, which was a 0.5% further drop over August. Meanwhile, the National Bureau of Statistics showed that third-quarter Chinese GDP growth steadied to a solid 6.7%.

But putting aside the short-term trend lines, the longer-term outlook shows alarming signs of a major decline in China’s exports.

According to World Trade Organization data for major economies (those that represent about 90% of international trade), in the first seven months of this year, China’s exports accounted for 13.9% of worldwide trade, compared with 14.9% last year. Since China started reforming and opening-up, only once, in 1996, did the Chinese share of the global export market ever drop, and then only by 0.1%. Considering that internal and external economic development conditions changed this year, China’s significant decline in its share of exports may suggest an important turning point.

Changing times

The balance of payments value is a snapshot of a country's global competitiveness. It is an important indicator that reflects the current state of the economy and long-term expectations. Perhaps more than other factors, trade reflects its relative global competitiveness, while the change in capital accounts depends more on psychological factors such as investor expectations.

Therefore, along with commodity prices, trade is the thermometer of the condition of any major national economy. The fluctuation of trade is an indication of whether the economy is above or below its potential output, whether exporting its production capacity is necessary, or the "leakage" of foreign exchange reserves is taking place. This will affect further adjustment of domestic policy.

Not only has China’s global export market share shrunk, so has its trade surplus. According to data released by the State Foreign Exchange Administration, in the first eight months of 2016, China’s trade surplus, including goods and services, has decreased by as much as 18.9%, year-on-year.

China's economy can also be gauged by comparing its export situation with Asian competitors. Though India’s export growth this year is still negative, the decrease has narrowed. Its merchandise trade deficit has decreased and its services trade surplus has increased. Overall, India’s economic situation is better than that of China.

Compared with India, China’s services trade surplus also grew by 18.7%, not so little in terms of growth, but its trade deficit has significantly expanded, suggesting that China has yet to establish an advantage in its transition to the service sector.

Meanwhile, Vietnam is doing even better than India. Despite the fact that growth in world trade is lower than GDP growth rates, Vietnamese exports have enjoyed rapid growth. Between the 2008 financial crisis and 2014, Vietnam maintained double digital export growth. Last year it dropped to 8.1%, while in the first nine months this year growth has been accelerating again.

Rolling out the vases in Vietnam â€" Photo: Zabaraorg

Of course, the scale of Vietnam’s economy is too small to fundamentally shake China’s position in world trade; still, the contrast of the trend demonstrates that China is gradually losing its advantage in exports.

Three factors

So, what brought China's foreign trade to this turning point? Three key points are worth noting.

The first is demographic. The year 2012 marked the tipping point in China’s overall working-age population: For the first time, a net decrease of its working population appeared. This year includes another turning point, where the young population (20-29 years old) has reached 235 million. After reaching this peak, the highest ever for the past two decades, this population sector will start to decline next year. The young population is the main force of demographic movement and labor for coastal provinces. It’s also an important support for China's competitive advantage in exports. Once this population group starts to diminish, that will further increase labor costs and reduce the competitiveness of export goods.

Secondly, property prices have risen sharply. This adds to rising costs at every stage of the manufacturing process to further reduce Chinese export’s competitive edge and accelerated the relocation of processing enterprises. In the first nine months of this year, China’s foreign direct investment in manufacturing has dropped by nearly 10%.

Third is the government’s policy of cutting excessive industrial capacity. Attempts to reduce overcapacity has lowered production in sectors such as steel and coal, and this has led to significant relief from their falling prices. Certain product prices even rose sharply, making it more attractive to sell them domestically than exporting them.

In the current context of continued capital project outflow, an ongoing deterioration of current accounts revenue and expenditure will undoubtedly lead to a policy shift. In the past, a period of falling surplus usually corresponded with a tightening of China's monetary policy cycle. Devaluation pressure on the yuan (RMB) is increasing. The global competition for currency devaluation, which started in mid-2014, has seen the yuan remain strong, but has also accumulated a large depreciation pressure as a result.

In view of the accelerating decline of China’s global share of exports, coupled with declining demographics, an orderly release of RMB depreciation will certainly not be easy for anyone.


*Fan Junlin is a senior analyst of the Strategic Planning Department at the Agricultural Bank of China.

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Spencer Tunick Nude Installation in Israel

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Salam!*

Welcome to Monday, where the UK pays homage to slain MP David Amess, Myanmar frees thousands of prisoners, and Facebook gets ready to build its "metaverse." Please fasten your seatbelts: Worldcrunch also takes stock of the long-lasting effects — good and bad — the pandemic has had on the air travel industry.

[*Azeri - Azerbaijan]

🌎  7 THINGS TO KNOW RIGHT NOW

Myanmar to free political prisoners: Myanmar's junta chief Min Aung Hlaing has announced the release of 5,636 prisoners who had been jailed for protesting the coup that ousted the civilian government in February 2021.

• Powerful Haiti gang behind the kidnapping of U.S. missionaries: The notorious 400 Mawozo gang is believed to be behind the kidnapping in Haiti of a group of Christian missionaries, including 16 U.S. citizens and one Canadian. The brazen kidnapping on Saturday comes as crime is spiking since the killing of President Jovenel Moise in July.

• UK to pay tribute to David Amess: British lawmakers will pay homage in parliament to colleague David Amess, who was stabbed to death Friday in what was described by the police as a "terrorist incident." Officers arrested a 25-year-old suspect whose father, Harbi Ali Kullane, worked as a media adviser to a former prime minister of Somalia.

• COVID update: Russia has registered more than 34,000 cases of new infections in the past 24 hours, a new record since the start of the pandemic. Meanwhile, police in the northeast Italian city of Trieste used water cannons to clear striking dockworkers protesting Italy's new requirements that all employees be vaccinated.

• At least 26 killed in floods in India: Torrential rain has triggered floods and landslides in India's southern coastal state of Kerala, killing at least 26 people.

• Facebook to hire 10,000 in EU to develop "metaverse": The U.S. social media giant plans to hire 10,000 workers in the European Union over the next five years to build a "metaverse," a virtual reality version of the internet that the company touts as the future.

Punishing parents for children's bad behavior: After limiting gaming hours for minors, China is now considering legislation to reprimand parents if their children exhibit "very bad behavior" or commit crimes.

🗞️  FRONT PAGE

Colombian daily El Espectador dedicates its front page to Alex Saab, "owner of the secrets" of Venezuelan President Nicolas Maduro. The Colombian businessman, wanted by U.S. authorities for allegedly laundering money on behalf of Venezuela's government, has been extradited from Cape Verde to the U.S. where he is scheduled to appear in court today.

#️⃣  BY THE NUMBERS

4.9%

China's economy registered its slowest pace in a year as the country faces a looming energy crisis with power shortages and increasing pressure on its property sector. Gross Domestic Product (GDP) for the period between July-September rose 4.9%, the weakest numbers since the third quarter of 2020 and significantly lower than forecasts. The world's second-largest economy faces a debt crisis linked to the China Evergrande Group debt crisis, while energy shortfalls have dropped factory output to its weakest since early 2020, when heavy COVID-19 curbs were in place.

📰  STORY OF THE DAY

7 ways the pandemic may change the airline industry for good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

⛽ Cleaner aviation fuel: With air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel. In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials

.🛃 Smoother check-in: The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

✈️ The billion-dollar question: Will we fly less? At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel, in particular, is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.


➡️ Read more on Worldcrunch.com

📣 VERBATIM

"The crimes committed that night are unforgivable for the Republic."

— Emmanuel Macron became the first French president to commemorate the killing of as many as 200 Algerian independence protesters by Parisian police in 1961. For 40 years, French officials ignored the massacre, which took place a year before Algeria gained its independence from France after an eight-year war. In 2012, French President François Hollande acknowledged the killings for the first time on a visit to Algeria, and Macron took it further by attending Sunday's commemoration at the site where the events happened in the French capital. Still, many had hoped the French President would go further and take responsibility for a "state massacre," for a crime many historians consider the most violent repression of a peaceful demonstration in post-War Europe.

📈💥  IN OTHER NEWS

​Low trust, high risk: The global rise of violence targeting politicians

The deadly stabbing of British Parliament Member David Amess confirms an ongoing study on trust and governance in democracies around the world: It's bad. In The Conversation, James Weinberg — the study's author and a lecturer in Political Behavior at the University of Sheffield — writes:

⏪ The assassination of Amess, who was stabbed to death in his constituency on Friday, is a tragic moment for democracy. What makes it even more devastating is that such a catastrophic failure is not without precedent or predictability. Labour MP Jo Cox was shot at her constituency surgery in 2016. Before her, another Labour MP, Stephen Timms, survived a stabbing in 2010. And Andrew Pennington, a Gloucestershire county councilor, died in a frenzied attack in 2001 while trying to protect local Liberal Democrat MP Nigel Jones.

☝️ Beyond these critical junctures in the public debate about politicians' safety, elected representatives must live with an increasingly insidious level of popular cynicism that threatens violence on an almost daily basis.

🇬🇧🇳🇿🇿🇦 Not only are these experiences of abuse or threats of physical violence felt across both sides of the political aisle in the UK — they also appear to be growing more common in other democratic contexts where the climate of politics has been presumed to be both calmer and more volatile, from New Zealand to South Africa.


Read the full piece from The Conversation, now on Worldcrunch.com

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

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