Four major problems facing China’s foreign trade as the epidemic continues

Last Sunday, Chinese Premier Li Keqiang held a special meeting to “stabilize foreign trade.” As one of the troikas of the Chinese economy, he believes that “the foreign trade environment is still grim and complex,” and “this must be fully estimated and prepared for.”

The data also confirms this statement. Although the export of anti-epidemic materials has grown vigorously, China’s May foreign trade data is still dragged down by a variety of factors-exports have shifted from rising to falling, and imports have continued to be double-struck by volume and price to refresh the lowest for more than four years.

For China, the prospects for foreign trade are not very optimistic. In June, the epidemic situation in Europe and the United States rebounded and the blockade measures were re-implemented; bilateral relations with countries such as India and Australia deteriorated, which in turn affected bilateral trade; the epidemic in the new market in Beijing also brought new difficulties to the import of agricultural products.

Under multiple difficulties, China’s foreign trade is facing a situation that is similar to, but more difficult than, the 2008 financial crisis.

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Difficult one: the European and American epidemic resurgence, external demand shock

The biggest impact on China’s foreign trade is still the weak external demand. Many of the countries in Europe and the United States that have been affected by the epidemic have maintained a deficit with China. The large-scale blockade measures have basically suspended business activities and cancelled a large number of foreign trade orders.

The manufacturing factories on the eastern coast of China are facing a special dilemma-after the Spring Festival, they strive to overcome the domestic epidemic and gradually resume work and production, but they have caught up with the high point of the overseas epidemic and foreign orders have been greatly reduced.

In May, a group of major Chinese trading partners such as the United States, Italy, Spain, and the United Kingdom gradually liberalized restrictions and the economy entered a recovery channel. This is undoubtedly good news for China to boost its foreign trade.

But in mid-June, most of these countries ushered in a strong rebound in the epidemic.

Texas, the United States, once again strengthened isolation restrictions, and warned that the hospital will soon be overwhelmed.
Taking the United States as an example, although the epidemic appeared to be under control in May, the overall number of cases increased by 25% within a week. Among them, there were more than 36,000 new cases a day on June 24, which was comparable to the highest single-day record of 36,426 on April 24.

Last week, the World Health Organization (WHO) said that with the relaxation of restrictions, the number of confirmed cases per week in Europe recorded the first increase in several months. A meat processing plant in Germany diagnosed 1,500 new crown cases.

Australia also reported the highest number of new cases in a single day in two months.

Under the pressure of the resurgence of the epidemic, these places have no choice but to suspend the economic restart and resume the blockade policy.

In the United States, Texas Governor Greg Abbott announced a moratorium on the state’s economic restart. California authorities ordered the closure of bars in Los Angeles and six other counties on Sunday. To prevent cluster infections on the upcoming Independence Day, two counties in Florida and one in Miami will close the beach.

On Monday, Victoria, Australia’s second largest state, said it was considering reimplementing social distance restrictions.

North Rhine-Westphalia, Germany, imposed restrictions on the two counties again. This is the first time the blockade has been implemented anywhere in Germany since the lifting of the national restriction order in May.

The new round of restrictions will continue to weaken consumer demand in these countries and will have a negative impact on China’s foreign trade exports in the short term.

Street performers wearing masks in Times Square, New York
Difficult two: Poor bilateral relations with India and Australia hinder trade
Not long ago, a border conflict between China and India killed 20 Indian soldiers. The incident caused a call to boycott Chinese goods in India.

Last week, Reuters quoted three sources as saying that customs at the main Indian port of Chennai seized cargo from China for additional inspection.

The seized goods included a batch of auto parts shipped from China by Ford Motor Company to a factory in India. Ford India subsequently confirmed the news and stated that it is cooperating with the authorities and providing them with the necessary documents and details required.

In addition, other US companies producing in China including Apple, Cisco and Dell have also been implicated.

As far as China’s foreign trade situation is concerned, the move has made matters worse. India’s annual trade volume with China exceeds US$ 88 billion and its deficit exceeds US$ 53 billion. China is the country with the largest deficit in India.

The same situation happened in Australia. As the latter called for an international investigation into the source of the new coronavirus, diplomatic relations between China and Australia continued to deteriorate. In retaliation, China banned the import of some Australian beef and imposed high tariffs on Australian barley.

It is worth noting that some Indian experts have suggested that such resistance is not sustainable. Sharad Kumar Saraf, chairman of the Federation of Indian Export Organizations (FIEO), said that while supporting the government’s claim to promote India’s self-reliance, India relies on China for many key raw materials and boycotts those products that may in turn affect Indian products. Production and export, so this may not work.

Difficult three: “Technical Cold War” with the United States hinders the export of Chinese technology companies
From May to June, the United States initiated several restrictions on China in the field of science and technology.

The US Department of Industry and Security announced on May 15 that when manufacturers are required to export semiconductor chips using US technology or designs to Huawei, they must obtain an export license from the US government, even if they are manufactured outside the US.

The United States bans the sale of chips to Huawei, but allows domestic companies to participate in the development of 5G standards with Huawei
This means that regardless of whether or not US companies, as long as they use US technology in their products, they need a license when exporting to Huawei. For example, the United States will have the ability to prohibit TSMC from supplying HiSilicon, a subsidiary of Huawei.

In addition to continuing its efforts against Huawei, the United States is also expanding the scope of its suppression of Chinese companies.

On June 24, Reuters stated that the US government is planning to identify 20 Chinese companies as supported and controlled by the Chinese People’s Liberation Army.

In addition to Huawei on the cusp of the storm, and Hikvision, which has been on the list of US entities, it also includes China Mobile, China Telecom and China Aviation Industry Corporation. American media Axios reports that China Railway Construction Group, China Shipbuilding Industry Corporation, Panda Electronics Group and other companies are also on the list.

This means that President Trump will have the right to impose economic sanctions on the aforementioned companies.

Not only that, the United States has recently actively lobbied allies to ban Huawei’s 5G equipment, causing the company to retreat in many European and American markets.

As far as the Chinese economy is concerned, most of these technology companies are produced in China. Cracking them will directly pressure foreign trade data. In addition, it will also affect the efforts of the Chinese economy to transform into a high-end manufacturing industry.

The Beijing authorities have asked the Xinfadi market to be closed for full cleaning.
Difficulties four: Beijing epidemic resurgence impacts agricultural trade
When the epidemic gradually subsided and the economy gradually recovered, China also ushered in a rebound of the epidemic. Since June 11, a new epidemic of epidemic in the wholesale market in Beijing has occurred, reporting more than 200 local cases of new coronary pneumonia.

As a new crest virus was detected on a cutting board of imported salmon in the newly outbreak market, not only the import of salmon was greatly affected, but China’s imports of other agricultural and sideline products also tightened instantly.

The Brazilian Ministry of Agriculture said on Monday that after Brazilian media reported some new cases of employees of export enterprises to China, Chinese customs authorities recently asked Brazil about the status of these enterprises. Later, because of concerns about the new coronavirus, the General Administration of Customs of China temporarily banned meat imports from three Brazilian factories.

In addition, China also requires exporters to sign a guarantee that the goods are not contaminated by the new crown virus.

As China’s leading soybean importer, Brazil’s National Grain Exporters Association (ANEC) believes that Brazilian grain exporters should not assure China that their goods are not infected with the new coronavirus because it will require extensive testing.

China is the world’s largest soybean buyer, mainly imported from Brazil and the United States. The United States Soybean Export Association (USSEC) also confirmed receipt of the request to sign a guarantee.

Analysts believe that China’s increased scrutiny of agricultural product imports may result in retaliatory responses from affected countries, especially that China is fulfilling the procurement clauses in the first phase of the Sino-US trade agreement.

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Analysis: good news and bad news
BBC Chinese Chen Yan

Economists often view investment, consumption, and foreign trade as the “troika” that drives economic growth.

After joining the World Trade Organization, China has become the world’s factory, processing trade has developed rapidly, and the annual export growth has averaged 1.5 times the GDP growth. Foreign trade has become the fastest in the “troika”.

In 2006, the share of exports of goods and services in GDP peaked at 36%. However, with the advent of the financial crisis, this figure plunged to 24.5% in 2009. China is forced to shift the momentum of its economy to two other carriages-investment and consumption. In 2018, the share of exports in GDP has stabilized at around 19%, and exporting this carriage is no longer the main driver of the Chinese economy.

For China, the bad news turned into good news-the blow that year turned into an advantage in the Sino-US trade war. Since trade is no longer the main driving force of the Chinese economy, China is more confident in the confrontation between the two countries.

Under this epidemic, China’s foreign trade is under similar pressure as it was 12 years ago, but it is hard to say whether it can use this to activate the domestic consumer market.

Because the worse news is that China’s economy is facing comprehensive and complex pressure, not only from the outside — China is facing direct blows and confrontations from multiple trading partners; but also from the inside — the epidemic makes it difficult for China’s consumption to fully recover, and It is impossible to stimulate consumption growth to compensate for the loss of foreign trade as much as it did 12 years ago.

However, it is worth mentioning that the intensity of the global economy’s shock is also not the same as in the financial crisis. Although China’s foreign trade has multiple bad news, there is also good news that other countries in the world are under more pressure, and China’s economy is relatively “unrivaled”-last week the IMF predicted that China is currently the only major growth that will achieve positive growth in 2020 The economy is expected to grow by 1.0%.

Andrew Beck

Andrew Beck is a 28-year-old writer who enjoys playing football and reading books. He is smart and creative, but can also be very sneaky and a bit lazy.

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