Pictured is a cargo ship sailing from the Chinese port of Yantai to Indonesia on April 23, 2023.
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BEIJING – China cannot easily rely on its neighbors as export markets amid a worldwide slowdown, according to the latest trade figures.
Exports to the Association of Southeast Asian Nations are increasing. The ten-member bloc overtook the European Union during the pandemic to turn out to be China’s largest regional trading partner.
The info showed that exports to Southeast Asia fell 16% in May compared to the previous 12 months, lowering China’s total exports.
Exports to the US – China’s largest single-country trading partner – fell 18% in May compared to a 12 months ago in US dollar terms. That is according to official data obtained via Wind Information.
U.S. exports totaled $42.48 billion in May, surpassing $41.49 billion exported by China to Southeast Asia that month, according to customs data.
Southeast Asia cannot fully compensate for the losses in the US market, said Bruce Pang, chief economist and head of research for Greater China at JLL.
ASEAN consists of 10 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
Pang noted that the US is one market compared to a gaggle of 10 countries, adding that corporations also can sell with higher profit margins in the US market.
Trade has been a key driver of growth in China, especially during the pandemic.
Exports still make up about 18% of the economy, although that is well below the roughly 30% share it once had, Tao Wang, head of Asian economics and China’s chief economist at UBS Investment Bank, told reporters on Monday.
Drag from US
A slowdown in global growth, especially in the US and Southeast Asia, doesn’t bode well for Chinese export prospects.
“We expect Chinese exports to remain subdued as we expect the US economy to enter recession in the second half of the 12 months while global pressure to shed stocks continues to mount,” said Lloyd Chan, senior economist at Oxford Economics, in a Wednesday note. .
Boosting trade with developing countries became urgent with the closure of the US market and the collapse of the EU-China investment agreement after the war in Ukraine.
Jack Zhang
University of Kansas, assistant professor of political science
US corporations too working on high stocks that weren’t sold in the second half of last 12 months due to high inflation.
US GDP is predicted to fall from 2.1% in 2022 to 1.6% this 12 months, according to the International Monetary Fund.
Southeast Asia can be slowing down
ASEAN GDP is predicted to decelerate to 4.6% growth this 12 monthsdown from last 12 months’s rate of 5.7%, the IMF reported in April, when it lowered its GDP growth forecast for the region by 0.1 percentage point.
“The numerous drop in May confirms our suspicions that monthly data on China’s exports to some ASEAN economies – notably Vietnam, Singapore, Malaysia and Thailand – could also be somewhat distorted,” Nomura economists wrote in a Wednesday note.
“Given the apparent decline, exports to ASEAN have turned from a serious driver to an impediment, making a negative contribution of -2.4 percentage points to May’s primary growth.”
The US and ASEAN countries each accounted for 15% of China’s total exports in May, according to CNBC’s Wind Information calculations.
The info showed that on an annualized basis, the bloc has a rather higher share of 16% of Chinese exports compared to the US’s 14%.
“Waiting for something [China’s] exports likely to contract further at high levels, a deepening global manufacturing slowdown and an intensification of trade sanctions from the West, Nomura analysts said.
Regional trade strategy
The decline in exports is due to strained relations between the US and China, and Beijing is trying to boost trade with developing countries in the Asia-Pacific region.
“Many goods are 20-25% dearer to sell to the US, especially intermediate goods like machine parts,” Jack Zhang, an assistant professor of political science at the University of Kansas, told CNBC.
“Reviving trade with developing countries became urgent with the closure of the US market and the collapse of the EU-China investment agreement after the war in Ukraine,” he said.
The ten-nation bloc — together with Japan, South Korea, Australia and Recent Zealand — signed a free trade agreement with China in 2020. The Regional Comprehensive Economic Partnership (RCEP) is the largest transaction of its kind in the world.
Beijing said it might also like to join one other trade bloc — the Comprehensive and Progressive Trans-Pacific Partnership Agreement. The US will not be a part of the CPTPP, while the UK announced an agreement to join it in March.
RCEP has spurred China’s trade with ASEAN, as has the relocation of some labor-intensive manufacturing to the region, Zhang said.
Meanwhile, he noted that “China is accelerating negotiations on the China-ASEAN Free Trade Agreement (CAFTA 3.0), exploring free trade agreements with Mercusor in LatAm and the Gulf Cooperation Council (GCC).”
The Mercusor trading block includes Argentina, Brazil, Paraguay and Uruguay.
— CNBC Clement Tan contributed to this report.