TIOL - COB( WEB) - 936
SEPTEMBER 5, 2024

By Shailendra Kumar, Founder Editor

TRADE surpluses are akin to a right, hard-earned by a trading country to showboat one's macho rodomontade! And China has been doing so, for decades! It is also emblematic of economic success or prowess of a galloping economy! Though there are only about 20 such countries in the world but only two or three economies such as China, Germany and Russia can be said to be an inspiring example in the global trade. In 2022, China had the highest trade surplus of USD 878 billion - nearly double of what it was in 2017. It marginally dipped in 2023 to USD 823 billion owing to a slew of reasons. Incidentally, this has also been a piquant lightning rod of geopolitical bitterness between Beijing and Washington DC. The US has always pointed its finger at such trade surpluses to level a charge of unfair trade practices by China! Notwithstanding high tariffs and several non-tariff barriers, China had a trade surplus of USD 32 billion in the month of June 2024. Incidentally, America happens to be only the third largest trading partner for China.

Its largest trading partner is the ASEAN with the annual trade volume worth USD 912 billion. The second largest is the EU with the annual size of USD 783 billion and the fourth one is Japan with USD 318 billion. So far till July this year, China has recorded a trade surplus of USD 85 billion with the ASEAN economies. What used to average around USD 16 billion since 1981, has peaked to USD 125 billion till February 2024. This has seemingly pushed many a touch discombobulated East Asian economies closer to the edge and ponder over their future strategies to deal with tinder-dry conditions. Similarly, in 2023, EU exports to China was worth USD 224 bn and its imports to the tune of USD 516 billion - a whopping trade deficit of USD 292 billion. In the month of June, China imported goods worth USD 1.3 billion from India and exported goods worth USD 10 billion. India's trade deficit has skyrocketed nearly to USD 100 billion in 2023.

Now, the gnarly question is - how long China is going to generate such trade surpluses? Given its 'macabre' economics of structural overcapacity for industrial goods, can such surpluses survive for long in the reigning fractured geopolitical ground realities? An easy-to-fathom answer is NO! Its exports has already swirled to a slower lane in the month of July. Surprisingly, its imports has risen by 7.2% in July, largely because Chinese tech giants like Baidu and Huawei, have been stockpiling high bandwidth memory chips in anticipation of more curbs from the US. Going by some of the recent developments on the global tariff landscape, my prognostication is that the era of a steady decline of China's trade surpluses has already begun. It is no longer only China vs America or China vs the West. To Beijing heavyweights, some of these wrangles may look like redolent of playground bickering but they are not! Some of the recent developments in the Global South are much stronger ominous signals for China's unbridled run to dump its industrial goods at cheap prices in the global markets. I have already written many pieces in this column on how the West has been taking measures to clip China's over-fluttering wings. I have also talked about how China has been making gargantuan investments in all such countries which are seen friendly to the US and have been important players in the global supply chain. Chinese exports to Mexico, Brazil, Thailand, Indonesia and Malaysia have been on the rise as companies relocate their production to neuter US tariff measures. The US has taken note of China circumventing its tariff wall and has expressly told these countries that if they do not snarl such exports, America will raise its tariff wall against them as well or they would lose their MFN status!

Anyway, let's leave aside the West and focus more on the Global South which has emerged as much bigger basket for the Chinese goods than the West, for the first time. If we combine Africa, Latin America and South Asia to the ASEAN countries, obviously, they have become the biggest dumping ground for China. As per one study, greenfield investments by Chinese companies ballooned to USD 160 bn in the Global South in 2023. They see over five billion population as major market and their listed companies last year sold goods worth USD 800 bn in the Global South economies. Listed firms in China last year reported USD 1.5 trillion foreign revenue! Beijing's subtle intention is to defenestrate Western MNCs from this part of the world by dumping cheap but quality products on the strength of their subsidy-riding overcapacity at home! ASEAN, in particular, has seen much heftier increase in shipments from China in the recent months. As a result, thousands of companies in the East Asian economies have been shuttering their operations. Thailand reported closure of 1300 factories in 2023 - 60% jump from 2022. Car-makers like SIAC and BYD have set up their plants in Thailand and now account for over 20% market-share but they continue to import a major swathe of parts from their homeland. Most factories set up by Chinese firms in the Global South are largely screw-driver platform which does not help in generating local employment. Similar stories are being reported on a daily basis from Indonesia and Malaysia. What has exacerbated the crisis is the popularity of e-Commerce platforms like Lazada, Shopee, Shien, and TikTok. The rising economic discontent has created serious dilemma for the governments in the ASEAN countries. And here comes a pushback. Local manufacturers, distributors and retailers have begun piling up pressure on their governments to curb Chinese goods being exported at throw-away prices.

What clearly upsets the governments in these countries is the rising trade imbalance and China showing blithe disregard to their concerns. Thailand's trade deficit swelled from USD 20 bn in 2020 to USD 37 bn in 2023. For Malaysia, it leapt from USD 3 billion to close to USD 15 billion during the same time-frame. Indonesia has reported deficit of over USD 5 billion in non-oil trade with China in the first half of 2024. In 2023, Seoul also reported similar deficit for the first time in last three decades! In the first six months of the current year, South Korea has reported that over 1000 companies have filed bankruptcy petitions and all of them have blamed cheap Chinese goods for their state of concussions. Indian steel producers were also in pain but the Government of India quickly did what it has almost become accustomed to do - imposition of anti-dumping duty. Even as Malaysia and Indonesia are weighing their geopolitical and geo-economic interests to impose anti-subsidy duty, Thailand is poring over the provisions of China-ASEAN trade treaty and also the Regional Economic Partnership (RCEP) which India had foresightedly passed over! Elsewhere in the Global South, Brazil and Mexico have recently imposed higher tariff on cheap imports. For instance, Brazil has levied higher tariff on electric vehicles. China today faces over 1100 anti-dumping duties imposed by countries across the continents. India alone has imposed over 500 such duties in the past 15 years.

With the West unitedly imposing anti-subsidy duty on a wide range of Chinese products, and the Global South's emerging economies, which aspire to join the China-Plus-One network, also following suit, the glorious history of jaw-dropping trade surpluses diligently tailored by China in the past decades, is going to pale, not too soon, but in the coming years. Geopolitical ambitions of China have taken a serious toll on its economic fortune. With a number of policy bumps being carved out to deny China advanced chips, other technologies, screening of capital both ways and the rising tariff walls, not only in the West but also the Global South, the size of global markets for cheap Chinese goods is fast shrinking. What may prove to be a double whammy for its economy is the contracting domestic demand and the price war among the domestic suppliers. A foreseeable consequence of such chaotic macro-economic grammar is the increased pace of bankruptcy and the vertically rising graph of corporate debts and national debts. With its productive work force shrinking, a major slice of population ageing, and Western MNCs joining the flock of 'flying geese', the road ahead throws many ticklish gauntlets for its economic planners and development economists. In today's globalised world where every country of a good-sized population has a dream to turn self-sufficient, the dragon of excess production and political ambition for global military supremacy may not jog together long distance. In the years to come, the China-Plus-one shift in the global supply chain would take deep roots in many emerging economies in the Global South and the volume of cheap Chinese goods would chill for sure, and the curtains over the carnival of 'obscene' trade surpluses would begin rolling down! The shoots of the beginning of its end may be overlooked by Beijing today, but only at its own future peril! Au revoir!