Looking Back to 2013: As the Third Plenum Approaches, So Much for China's Promised Opening Up
Issue 152, Monday 1st July 2024
When Xi Jinping was elected President of the PRC in March 2013, there were prominent voices in China promising a more balanced trade. At that time, some officials and scholars even suggested that a small deficit around 2021 would not be detrimental, considering the consumption upgrade in China and the increase in imports of expensive items to enhance its manufacturing value chain. "Further opening up" and giving the market a voice were popular concepts then.
Instead, China continued its quest to maximize the surplus, culminating in a return to exports as the engine of its economy. At some point after COVID, its surplus in goods reached the equivalent of 1% of the GDP of the rest of the world. While EU exports to China grew at the equivalent of a compound annual growth rate of 2.8% between 2013 and 2023, its imports from China increased at an annual rate of 8%, widening the deficit with China in blatant contradiction to the expectations set in 2013 when Xi's tenure started.
This time, ahead of the Third Plenum starting on July 15, we are setting our expectations for opening up much lower than in 2013. However, we anticipate very much the same rhetoric.
As for China’s economic plans, to achieve its goal of doubling GDP by 2035, China needs an annual nominal growth rate of 6%. This rate matches the average growth of the past five years. However, it is worth noting that the current economically active population is smaller than it was during the last Third Plenum in November 2018.
EU Member States' Exports to China - 2013 Set to 100
EU Member States' Imports From China - 2013 Set to 100
China's Combustion Engine Car Industry and the Invasion of Ukraine
Russia's invasion of Ukraine led to an increase in combustion car exports from China to Russia.
In February 2022, just before the invasion, 9% of China's combustion car exports went to Russia. By May 2024, this share had risen to 26%.
China's Lobby in Brussels Warns of Retaliatory Measures Against the EU's FSR Regulation
The China Chamber of Commerce to the EU (CCCEU) pre-announces China's countermeasures against the EU's Foreign Subsidies Regulation (FSR).
The FSR, set in place in July 2023, enables the Commission to address distortions caused by foreign subsidies. The FSR was enacted to close a loophole that was harming EU companies.
Prior to the FSR, subsidies granted by non-EU governments went unchecked, while subsidies granted by Member States were subject to close scrutiny under EU State aid rules.
EU Adjusts Down Provisional Duties for China E-cars, Sources Claim
According to some sources, the European Union has slightly lowered its proposed tariffs on imports of China-made electric vehicles in the EU, as the bloc and China have agreed to hold consultations.
17.4% BYD
19.9% Geely (previously, 20%)
37,6% SAIC (previously, 38.1%)
20.8% all others not sampled but having cooperated in the probe (previously, 21%)
37.6% to uncooperative companies (previously, 38.1%)
Sign of the Times: Foreign Investment in China Plummets
China's Q2 GDP Outlook
We dare to speculate about Q2 GDP.
According to the China Bureau of Statistics (NBS) calendar, the release date for China's Q2 GDP is scheduled for July 15th. However, the top brass might announce the Q2 GDP figures at the Third Plenum, also commencing on July 15th.
Current indicators lead us to suggest a nominal GDP of 30.2 trillion yuan for Q2 2024.
The figure we forecast is 2% lower in nominal terms than in Q2 2023. In real terms, we are sure the Chinese government will achieve favorable results with the appropriate deflator. We will see in two weeks from now.
Coffee Beans and Hockey Sticks
If Luckin Coffee has finally signed an agreement with Brazil to acquire $500 million worth of coffee beans, we don't know for sure, but we do know that China's electric car exports to Brazil are in the shape of a hockey stick.
China's Cross-Border eCommerce Exports Soar
In May, China's budget-friendly online platforms climbed to the second position in the country's export rankings by value.
Interestingly, exports from this category exceeded those of China's sectors promoted by Xi Jinping as new productive quality forces: Li-ion batteries (5th), electric cars (7th), and photovoltaic products (9th). Additionally, the top position was claimed by a long-established category: cellphones.
Reuters reports that Amazon plans to introduce a new section on its shopping site featuring inexpensive items shipped directly to international consumers from warehouses in China. The initiative aims to compete with the growing influence of discount platforms like Temu and Shein.
EU's eCommerce Sellers Unhappy with Foreign eCommerce Players
In June 19, the EU lobby representing the Online E-Commerce sector, made an
“urgent call for level playing field and effective enforcement of EU rules towards all e-commerce players active in the EU”
Referring to ecommerce platforms from outside the EU without naming them, Luca Cassetti, Secretary General of Ecommerce Europe, remarked,
“the commercial practices used by these players raise questions about their compliance with Union legislation, especially in the areas of consumer protection, product safety, counterfeiting, data protection, privacy, environmental and taxation legislation”
China's Outbound eCommerce Exports Dwarf Imports
China's Political Posturing: Per Capita Pork Consumption Has Reached Its Peak
China's investigation into its pork imports from the EU involves a significant amount of political posturing. In reality, China's pork imports have been plummeting since 2021. After addressing the ASF outbreak in its pig population, China's imports have returned to pre-ASF levels.
Zhu Zengyong, the chief analyst for the pork industry at China's Ministry of Agriculture and Rural Affairs, indicates that per capita pork consumption in China has already reached its peak.
China's Trade With Argentina Under Milei Plummets
A possible visit by Milei to Beijing is expected in early July. Apparently, China has agreed to renew the currency swap worth 35 billion yuan with Argentina, extending the validity period of the agreement by 12 months. The visit is scheduled for July 4th. Additional EU tariffs on electric cars imported from China will take effect that day, while the U.S. will be celebrating its National Day.
The Persistent Anomaly of China’s Trade Surplus
Something that has been happening for some years now; calling it an anomaly is an understatement—it is a huge gap.
The US Treasury stressed this fact in its latest report to Congress on June 24. It is a puzzle yet to be clarified, and we look forward to hearing about any Treasury findings.
In recent years, China’s balance of payments data published by SAFE (...) have shown that the trade surplus reported in the balance of payments is far lower than that reported by China Customs
Dodging Surplus, Focusing on Total Volume
We often cite China's practice of praising total trade with countries or blocs to evade the thorny issue of its surplus, which is never addressed.
Rhodium Group explains it much better in a recently published piece worth reading.
We add an example of our own: Africa (see graph)
While ten years ago, Africa's deficit with China accounted for 34% of its total trade deficit, it climbed to 54% by 2023. Africa's deficit trend with the rest of the world has remained flat over ten years, whereas the trend with China has been upward, despite China's narrative.
Chinese State-Owned Companies to Build New Port in the Black Sea
Anaklia will now be the site of Georgia's first deep-sea port, which will be built by a Chinese-led consortium.
China Communications Construction Company (SOE)
China Road and Bridge Corporation (SOE)
Qingdao Port International (SOE)
EU-Japan Deal on Cross-Border Data Flows Enters Into Force
While you read this, the EU-Japan deal on cross-border data flows enters into force (July 1st). There are many reasons to celebrate. Digital trade is the next big thing, currently accounting for one-fourth of the total trade.
The protocol will provide greater legal certainty, ensuring that data flows between the EU and Japan will not be hampered by unjustified data localisation measures.
China's Baijiu Exports to Reach $1 Billion in 2024
For many years, China largely overlooked the export potential of its national liquor. The strong taste of this spirit has traditionally been seen as unusual by other cultures, requiring time for people to acquire a taste for it. The majority of mainland China's baijiu exports are directed to Hong Kong and Macau (40%) and South Korea (27%), where there is familiarity with similar local spirits. The remaining exports are more dispersed, catering to the Chinese diaspora in the U.S. (7%), the EU (5%), Singapore (2%), and various other countries.
It is reported baijiu producers are now serious about exporting as the new generations in China are less fond on the traditional Chinese white spirit.
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