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China's Supply Chain Shift - August Official China Trade Data

TDM Insight: China Trade Statistics Show Supply Chain Disruption.

By John W. Miller, Chief Economic Analyst - Trade Data Monitor

The global economy is getting back to normal, but supply chains are not exactly returning to where they were before the Covid-19 pandemic.

Consider this: In August, Chinese shipments of textiles fell 14.8% year-on-year, off a low base in 2020, to $12.5 billion, and exports of mobile phones declined 24.4% to $7.4 billion. However, sales of motor vehicles outside the country, a new growth industry for China, rose 189.8% to $3.7 billion, according to Trade Data Monitor, the world’s top source of trade statistics.

Companies appear to be hedging against the possibility of more U.S. import tariffs, spreading their Covid-19 risk, and fleeing China’s rising labor costs by moving production of some clothing and electronics to Vietnam, Bangladesh, and other Asian manufacturing nations. At the same time, China’s industrial capacity is closer to catching up with the U.S. and Europe.

And while China is developing new markets and losing others, it’s also reestablishing some traditional trade relationships. Exports to Australia increased 30.8% to $5.9 billion, while imports from the continent rose 97.9% to $18.1 billion.

The headline numbers for China were strong in August, reassuring investors and Chinese leaders that the country is moving past Covid-19 infections at ports this summer, and broad industrial slowdowns in 2020. Exports jumped 25.6% year-on-year in August to $294.3 billion, according to customs statistics published Tuesday. Imports increased 33.1% year-on-year to $236 billion. Both numbers exceeded predictions by analysts. “We think the global economic recovery will continue to underpin China's exports in the end of this year and in 2022," Louis Kuijs of Oxford Economics wrote in a note. "While near-term headwinds remain, supply constraints in China have eased.”

In the first eight months of 2021, exports and imports were up 34% and 35% year-on-year. China's trade surplus, a measure of its dominance of world export markets, was $362.5 billion, up almost 30%.

The U.S. continues to be China’s top export market. Shipments to the U.S. rose 15.7% to $51.7 billion, compared to exports to the European Union rising to 30.5% to $46.2 billion, and those to ASEAN going up 16.8% to $39.5 billion.

Rare earth exports increased 121.6% to $52.8 million, a measure of how high-tech industries are recovering around the world, and also an illustration of how small the rare earths industry actually is. The world is back on the move, again. Exports of suitcases, handbags and other kinds of luggage rose 49.4% to $2.6 billion.

And industries from appliance-making to electronics are back, too. Shipments of steel products leapt 119.9% to $7.3 billion, while exports of LCD panels jumped 42.7% to $2.6 billion.

Industrial surveys have been suggesting a slowdown in growth, or even contraction. But what appears to be happening instead is a subtle change in what China makes. For several years, companies have been moving supply chains elsewhere in Asia. For example, in the first seven months of 2021, U.S. imports of apparel and clothing accessories from Bangladesh, India, Cambodia, Mexico and Italy all increased. In the first six months of 2021, exports of telephones and parts from Vietnam increased 14.1% to $25.1 billion and shipments of textiles rose 16.2% to $15.3 billion, according to TDM data.

Another sign of companies setting up more supply chains focused on China and Asian trading partners is ASEAN countries’ increased dominance of shipments of goods to China. In August, Chinese imports from ASEAN increased 26.8% to $32.8 billion, compared to a 12.4% rise to $25.3 billion for the EU. Imports from the U.S. increased 32.7% to $14 billion, reflecting higher prices for essential commodities like soybeans, iron ore, and crude petroleum.

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