China Boosts Exports, Cuts Commodity Imports in September, Widening Trade Surplus

If China is the chef in the kitchen making us all food, there’s reason to believe that the global economy might be getting less hungry in the near future. In other words, in September, the Chinese factories that anchor the world’s top manufacturer and top exporter bought less than expected of the raw materials they require to make industrial and consumer goods.

China’s imports in September rose only 17% to $239 billion while exports soared 28.1% to $305.7 billion. Analysts had expected both numbers to be around 20%. Significantly, China’s trade surplus with the U.S. increased to a record $42 billion, despite recent westward bottlenecks in supply chains and container shipping ports.

Driving the surplus was a drop in Chinese imports of essential commodities. The country’s buyers of raw materials cut their order in September. Shipments of iron ore dropped 11.8% to 95.6 million tons; copper declined 1.2% to 2.1 million tons; and oil shrank 15.3% to 41.1 million tons. Economists expect global demand to level off in the last quarter of 2021, after a sturdy recovery from the Covid-19 pandemic.

The situation with soybeans might worry the U.S. Chinese imports of soybeans fell 29.8% to 6.9 million tons. Buying more of the protein-rich crop from farmers in Kansas and Nebraska was a key bargaining chip China had agreed to in order to appease U.S. concerns about the trade deficit. The Biden administration is about to reengage with Beijing over securing better trade terms for its exporters.

One exception to this picture was coal imports, which rose 76.4% to 32.9 million tons. Although this signifies increased demand for electricity, and will be amplified as China reacts to shutdowns this month in its own mines because of flooding, it also should not be overinterpreted. China imports less than 10% of its coal consumption. However, the coal imports are part of a larger trend: China’s booming consumer market is going to need more power in the next decades, straining the world’s energy resources. In September, imports of natural gas rose 23.6% year-on-year to 10.6 million tons.

At the same time, China has shown remarkable resiliency in 2021 as the world’s most powerful exporter. The country’s outbound shipments increased 33% to $2.4 trillion in the first nine months of 2021. As customs spokesman Li Kuiwen put it, “there are both many favourable and unfavourable factors affecting the trade.”

There’s so much manufacturing within China that imports often aren’t necessary for Chinese buyers. And trade barriers still make it difficult for foreign industries to ship into China. As China builds up its high-tech and sophisticated machinery sectors, it’ll need to import less, too. Imports of motor vehicles in September declined 10.6% to $4.9 billion. Meanwhile, Chinese exports of motor vehicles almost doubled, increasing 93.2%, to $2.8 billion. However, overall high-tech imports did increase 10.4% to $77.5 billion.

It’s still China’s Asian trading partners who are winning the race to conquer Chinese import markets. Imports from ASEAN increased 17.4% to $36.2 billion, while exports rose 17.6% to $40.4 billion. By comparison, Chinese imports from the U.S. rose 16.6% to $15.4 billion, while exports to the U.S increased 30.8% to $57.4 billion. Chinese shipments to the European Union rose 29.4% to $44.5 billion while imports bumped up only 1.1% to $26 billion.

Latin American Soybean Exports Hit by Covid Slump

The recent bottlenecks in ocean shipping and in ports hit by Covid-19 outbreaks have spotlighted the economic power of one of the world’s most important crops: soybeans.

With Chinese buyers waiting for better margins before buying, and a lack of shipping capacity, exports are down by volume, but, thanks to higher prices due to shipping constraints and hoarding of supply, they’ve increased in value, according to an analysis by Trade Data Monitor, the world’s premier source of trade statistics.

China accounts for 60% of the world’s imports in soybeans, and shrinking profits in its hog sector have dented demand. That’s having an impact around the world.

There is no agricultural product that Latin America dominates as much as soybeans. The continent controls two-thirds of the world’s supply of exports. Soybeans have become one of the world’s most essential crops as a source of protein, and alternative to beef, pork, and chicken. Four of the world’s top seven exporters of soybeans are in Latin America: Brazil, Paraguay, Argentina and Uruguay.

In this century, production and exports have received a massive boost from China imports and consumption. Chinese imports of soybeans increased to $39.5 billion in 2020 from $2.3 billion in 2000. As societies like China become wealthier, they need more protein, and soybeans are the best agricultural source. In addition, the move toward vegetarianism is providing an added boost to soybean farmers.

And Latin America is, by far, the biggest supplier of soybeans to China, although an analysis by TDM, shows that the U.S. is catching up. A trade deal signed in early 2019 in order to appease the Trump administration committed China to ramp up imports of soybeans from the US. Farmers from Kansas and Nebrasks have grabbed market share from farmers in Brazil. In the first six months of 2021, China imported $14.3 billion of soybeans from Brazil, its top source, up 13% over the same period in 2020. During that time, it imported $10.5 billion from the U.S., a whopping 183.1% increase.

Soybeans were introduced to Latin America by colonial occupiers before 1900, but took off as a crop during World War Two. It was an easy, prolific source of protein, to replace damaged livestock herds. In the 1950 and 1960s, agribusiness took over, planting huge soybean crops across Brazil and Argentina.

The tight shipping situation created by Covid outbreaks and businesses recovering from the pandemic has triggered price increases despite stagnant demand. That’s created a distortion in global trade statistics between trade by volume and trade by value.

For example, in the first six months of 2021, Brazil cut exports of soybeans 1.1% to 57.6 million tons from 58.8 million tons. But by value, exports jumped 23.9% to $24.7 billion. Brazil is, by far, the world’s top source of soybeans, and its biggest markets are China, Spain, Turkey, the Netherlands, Thailand and Pakistan.

Other countries have also been hit by a Covid slump. By volume, Uruguay reduced exports 7.5% to 646.9 thousand kilograms, Argentina cut shipments 55.4% to 1.4 million tons. And in Paraguay, they were down 7.3% to three million tons. But by value exports from all three countries soared.

China relies heavily on Brazil and the U.S. for soybeans. It imports minimal amounts from Argentina, Uruguay and Paraguay. Instead, Paraguay exports much of its production to other countries in Latin America. Its top markets are Argentina, Brazil, Russia, Tunisia and Uruguay.

Argentina’s top markets are China, Egypt, Chile, the U.S., and Uruguay. It’s also suffered from China’s promises to ramp up shipments from the U.S. In the first five months of 2021, Argentina cut exports to China 71.7% to 695.5 million kilograms, according to TDM.

China's Booming Car Exports Show Supply Chain Shift

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.

Even with Covid, Vietnam is Clear Winner of 2021 Recovery

In the ongoing disruption of the global economy, Vietnam is emerging as a clear winner. Its economy is expected to grow by 4.8% of GDP in 2021, according to the World Bank.

To be sure, the Covid-19 pandemic has hit Vietnam this summer, after the country was largely successful at curtailing the virus in 2020. That will hurt the country’s second half of 2021, but long-term trends still support Vietnam establishing itself as a major economic power.

Crucial to its rise are powerful manufacturing and shipping sectors, which benefited the most of any major trading power from the global economic recovery in 2021, according to an analysis by Trade Data Monitor, the world’s premier source of trade statistics.

Overall, Vietnamese exports rose 28.9% to $158.3 billion in the first six months of 2021. In June, exports increased 20.5% year-on-year to $27.2 billion. Vietnamese imports increased 35.8% to $159.3 billion during the first six months of 2021. Vietnam’s GDP in 2021 is expected to be a bit under $300 billion, making it a rare country whose total trade is twice that of GDP, without the stimulus of oil or mining resources.

The country of 96.5 million has taken its place as the prime beneficiary of China’s changing trade relationships with the U.S. and Europe, rising protectionism in the West, supply chain adjustments, and the boom in economies across Asia. The combination of low labor costs, stable exchange rates and prodigious foreign investment from multinational companies have turned Vietnam into a shining star.

It’s the versatility of the Vietnamese export machine that makes the country’s future especially bright. Vietnam’s factories make everything from Nike and Adidas shoes to Samsung and Apple phones, as well as wide varieties of furniture and electronics. It’s also been boosting its shipments of heavy industrial goods like iron and steel, according to TDM data.

By far, the biggest buyer of Vietnamese exports has been the U.S. It’s the world’s top consumer market, which indicates how vital Vietnam has become to the world’s top consumer manufacturing companies.

Overall, the U.S. boosted shipments from Vietnam 44.7% in the first six months of 2021, to $47.8 billion. By comparison, Vietnamese exports to the EU increased 18.2% to $19.4 billion. It’s possible that the two Asian power will divide up the world: China will become Europe’s principal manufacturer, and Vietnam, that of the U.S. Exports to China rose 24.7% to $24.5 billion. The biggest category of Vietnamese exports to the U.S. was electronics, up 43.5% to $15 billion, followed by furniture and bedding, up 74.5% to $6.8 billion.

Overall, Vietnamese exports of iron and steel exports rose 116.9% to $4.5 billion, and exports of footwear increased 27.7% to $10.3 billion, underscoring the diversity of its economy.

On the import side, Vietnam is still shipping in many outfits imports as part of corporate supply chains. Imports from the U.S., for example, rose only 8.3%, to $7.6 billion during the first six months of 2021, while imports from China rose 51.6% to $52.9 billion in the first six months of 2021.

The exception is Australia, which has grabbed much bigger shares on Vietnamese import markets. Australia boosted exports to Vietnam 62.5% to $3.4 billion in the first six months of 2021. The bulk of that was essential commodities, such as iron ore, cereals, copper and cotton, according to TDM data.

Australia, which has a tense trading relationship with China, increased imports from Vietnam 32.7% to $2.6 billion in the first six months of the year. Vietnam is now Australia’s third source of electronics, behind only China and the U.S. Overall, Vietnam increased shipments of electronics 37.4% to $932.1 million. Vietnam is also grabbing market share in other sectors that China has dominated. It ramped up exports of footwear 57.1% to $258.1 million, and increased sales of furniture and bedding 53.6% to $131.4 million.

Chinese Industrial Sector Shows Risks of 2021 Slowdown

China’s industrial sector is headed for a slowdown in the second half of 2021, according to an analysis by Trade Data Monitor, the world’s premier source of trade statistics.

In July, overall exports increased 19.4%, to $282.7 billion, compared to the same month a year earlier, below analysts’ expectations. In June, they had increased 32.2% year-on-year. Imports in July rose 28.1% year-on-year, to $226.1 billion, compared to 36.8% in June, according to TDM data.

The reasons include Covid outbreaks, bad weather, and high shipping costs dented trade in July. In addition, a capacity squeeze is inflating commodity prices, prompting Chinese buyers to slow imports, as authorities consider import tariffs to trigger more domestic purchases.

The upshot is, most likely, a slowdown in Chinese economic growth in the second half of 2021. China’s expected GDP growth is now 5.1% in the third quarter, down from 6.4%, according to a recent projection by Nomura Holdings Inc. For the year, GDP growth is now expected at 8.2% instead of 8.9%, Nomura said.

To be sure, the higher base of the second half of 2020, compared to the Covid-weighed first half of 2020, will contribute to making trade appear less impressive during the rest of this year.

But the cause for concern is real. Authorities in several dozen Chinse cities have had to shut down businesses and factories. A semiconductor shortage continues to bite. The disease has broken out in eastern and southern China, site of ports and other export hubs. In addition, Chinese authorities are looking to reduce dependence on foreign commodity suppliers.

It’s China’s diminishing imports of raw materials that should be most alarming. Analyzed by value, imports of raw materials appeared to increase or flatten. But by quantity, there is a clear loss of demand. By quantity (again, not value), here’s how much imports of essential raw materials fell year-on-year in July: soybeans (-14.1%), vegetable oil (-21.9%), iron ore (-21.3%), crude oil (-19.2%), fertilizers (-33.2%), plastics in primary form (-31.4%), and paper pulp (-10.8%). There were some exceptions. Imports of copper ore and concentrates increased 5.1%.

On the export side, we’re seeing the post-lockdown economy taking shape. People are traveling again. Exports of luggage and suitcases increased 32.5% to $2.5 billion. In a saturated market, exports of mobile phone fell 9.2% to $10 billion. Despite outbreaks of Covid and variant diseases in the U.S. and Europe, people also are not as sick as a year ago. Exports of medical and surgical equipment fell 17% to $1.7 billion.

China’s heavy duty industrial sector, which fired up before its competitors in the U.S. and Europe, is rebounding. Exports of steel products ramped up 108.4% to $7.6 billion. Shipments of unwrought aluminum products increased 67.2% to $1.6 billion.

China’s economy is also making ever bigger leaps toward competing with the U.S. and Europe in making high-end goods packed with sophisticated electronics and engineering. Exports of motor vehicles increased 114% to $2.9 billion. Shipments of textiles and yarns, however, declined 26.7% to $11.7 billion.

By geographical region, China’s trade appears steady. The U.S., Europe, and Asia, are all experience similar degrees of Covid resurgence. Exports to the European Union increased 17.9% to $43.3 billion. Imports from the EU rose 19.8% to $25.9 billion. Exports to the U.S. increased 13.6% to $49.6 billion. Imports increased 25.4% to $14.1 billion. Exports to ASEAN countries increased 14.9% to $39.8 billion. Imports rose 27.8% to $30.8 billion. Exports to Singapore, however, fell 17% to $4.4 billion, as the logistics hub experienced Covid-related shutdowns. We’re not locked down like a year ago, but we’re still living in a world shaped by Covid.