The Chinese export sector has weathered well the rise in trade tensions and tech rivalry with the US since 2018. The Chinese industry has shown a solid capacity to adapt to the increase in trade barriers and it has kept its leadership position in global trade.
Recent external trade data have highlighted the strong performance of Chinese exports in the first half of 2024. Export growth has been driven notably, but not only, by exports of Greentech and high tech products. Chinese enterprises have been strongly supported by the industrial policy of the Chinese authorities, they have gained market shares in a large number of sectors, thanks to the fall in their export prices and volumes of exports of Chinese goods have reached record high levels.
Since 2018, the expansion of the export sector has also been supported by the diversification of China's trade partners. The share of Chinese exports to the US has declined, but at the same time, China has exported more and more to emerging markets.
In the meantime, the structure of trade flows has changed, and all this is related to the reorganization of global supply chains. Chinese firms and multinational groups producing in China, have redirected some of their export flows from the US to other markets. But most importantly, they have reorganized their production in the region. They have moved some of their factories to other countries in order to produce in countries with lower production cost and in order to circumvent US trade barriers. The relocation of production and the nearshoring process have accelerated over the past two years because multinational groups have implemented de-risking strategies in order to secure their supply chains.
ASEAN countries in Southeast Asia have largely benefited from these dynamics. First, in recent years, FDI flows to ASEAN countries have increased more rapidly than FDI flows to other emerging countries. And in 2023, FDI flows to ASEAN countries continued to increase while FDI flows to the rest of the world declined.
Therefore, activity in ASEAN economies has been stimulated by the expansion of their industrial production capacity and by the expansion of their export base. And at the same time their manufacturing sector has climbed the value chain. Vietnam is clearly a key beneficiary of all of these dynamics.
With the reorganization of supply chains, the trade integration of ASEAN countries with China has strengthened. ASEAN countries have increased their exports of goods to China, and most importantly, they have increased their imports of goods from China.
Chinese producers have increased their exports of intermediate goods to third countries, which have become growing centers for the assembly and the production of goods that are then exported to Western markets. In the meantime, processing trade in China has declined. ASEAN countries have gained a large portion of the US market shares that have been lost by China since 2018.
However, the reorganization of supply chains is not the only reason why China has increased its exports of goods to the rest of Asia. This has also resulted from Chinese firms seeking new markets for their own industrial production.
In this context, the protectionist risk is increasing and spreading in Asia. First, ASEAN countries may want to protect their own local industry, even though the leeway to increase trade barriers is likely to be limited by their dependence on Chinese investment and trade integration in the region. Secondly, the US may soon want to extend pressure on ASEAN countries and increase trade barriers on imports coming from third countries where Chinese firms finalize their products.
Thank you for your attention and see you in September.
