Why Did China’s Export Levels Surge in March Despite the Drop in US and EU Demand?

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China saw a surge in exports in the month of March, despite worsening geo-political tensions with the US and EU and the ailing economic performance of leading OECD economies on the back of hawkish monetary policy.

In March China’s exports in US dollar terms posted a year-on-year (YoY) leap of 14.8%, well ahead of market expectations given rising interest rates in key export destinations including the US and EU. The increase brought YoY growth in China’s exports for the first quarter of 2023 to 0.5%.

A key driver of China’s recent export surge has been robust growth in trade relations with emerging economies and nations in the Global South. This has compensated for declines in exports to advanced economies that are currently struggling with breakneck levels of inflation, and have adopted an increasingly adversarial stance towards Beijing.

Official data indicates that despite the leap in China’s overall exports in March, its exports to developed economies such as US and EU have posted heavy declined, reflecting a gradual slide in demand from these regions.

In the first quarter China’s exports to the US and EU dropped by 17% and 7.1% respectively in YoY terms, while their export market shares decreased by 2.2 and 0.3 percentage points respectively from the end of last year.

In sharp contrast, China’s exports to emerging economies in South-east Asia, Africa and along the Belt and Road initiative all surged at double-digit rates of increase.

In the first quarter of 2023, China’s exports to ASEAN, Africa, and Russia increased by 18.6%, 19.3%, and 47.1% respectively in year-on-year, terms, for accelerations in growth of 0.9, 8.1, and 34.3 percentage points respectively compared to the end of last year.

In the first quarter, China’s imports and exports with countries along the Belt and Road initiative increased by 16.8%, accounting for a 34.6% share of its total import and export value, marking an increase of 3.5 percentage points. Imports and exports with other Regional Comprehensive Economic Partnership (RCEP) member nations increased by 7.3% (in renminbi terms).

ASEAN has emerged as China’s largest trading partner, with its export market share in the first quarter standing at 16.9%, for an increase of 1.1 percentage points from the end of last year.

A key driver of growth in trade between China and ASEAN has been acceleration of industrial and supply chain integration, which has in turn driven the growth of intermediate product trade.

The investment and establishment of factories in Southeast Asia by multiple countries has also driven an increase in demand for raw materials, capital goods, and other products from China. In the first quarter, China’s exports of intermediate products to ASEAN increased by 17.9%, leading to an increase of 1.7 percentage points in its share of China’s total exports of intermediate products compared to the same period last year (in renminbi terms).

China’s investment and infrastructure project cooperation with the ASEAN region has also deepened, driving growth in exports across a range of sectors. In the first quarter of 2023, China’s exports to ASEAN through foreign contracting increased by 92.9% YoY (in renminbi terms).