China: rising trade surplus

Published on : 18/01/2021 – 09:25

Chinese growth in 2020 is the lowest for more than 40 years. Its GDP still grew by 2.3%, according to official data published on Monday, January 18. The performance is well below the 6.1% of 2019, but, although questionable, it is a score that Western economies can envy in the midst of the doldrums linked to the Covid-19 epidemic. The Chinese trade balance could well also be envious. Beijing has taken a step back.

China posted an overall trade surplus of $ 535 billion this year. That is, it exported $ 535 billion in more products than it imported: its highest level since 2015.

This surplus stems primarily from its trade relations with the United States. The balance has become more imbalanced this year in favor of China. Its surplus now stands at $ 317 billion, up 7.1% year on year.

A few days before his departure from the White House, it is a snub for Donald Trump who had made rebalancing the trade balance with China one of his hobby horses. That said, it should be remembered that in 2019, the Chinese surplus compared to the United States fell by 8.5%.

A trade surplus driven by the Covid-19 epidemic

In the process, in January 2020, shortly before the start of the crisis, a truce agreement was reached. China pledged to buy $ 200 billion in additional goods from the United States over two years. But the pandemic has seized the wheels of reconciliation.

Admittedly, at the beginning, the health crisis slowed down the Chinese economy which stopped before all the others. Moreover, in the first quarter its exports collapsed. But the Middle Kingdom also got back on track more quickly.

In December, orders from abroad even increased by 18%, after rising 21% in November.

The characteristics of the Covid-19 crisis have been beneficial for Chinese commerce. The country exported a lot of medical products. Between March and December, Beijing delivered 224 billion masks to the world. This still represents 40 masks per person outside the country.

With confinements and the generalization of teleworking, employees have had to equip themselves more with laptops, for example. The electronics sector had the wind in its sails which benefited Chinese sales.

Meanwhile, health restrictions in the United States have been a drag on trade, says economist Iris Pang of ING Bank.

But, it is not said that the Chinese trade surplus will continue to grow in this way. In terms of overall Chinese exports, the arrival of vaccines will in the more or less distant future limit purchases related to the pandemic such as masks or tests. In the medium term, this therefore risks penalizing Chinese exports.

On the other hand, the economic recovery should favor Chinese consumption and therefore the country’s overall imports.

Moreover, on the Sino-American aspect, an analyst noted the efforts of Beijing and a jump in December of its imports from the United States.

Highly anticipated Joe Biden policy details

As for the transition to the White House, will it change Sino-American relations? Joe Biden must detail his trade policy Thursday, the day after his inauguration. So far, the president-elect has hinted that he could follow suit on China. In December, he stressed his intention to stand firm, with Democrats sharing national security concerns with Republicans. However, the strategy could change. He would consider forming a common front with the historic allies of the United States, like the Europeans.

Contradictory arguments are submitted to it to influence it.

Outgoing Washington negotiator Robert Lighthizer urged him to maintain the sanctions.

On the other hand, a report published by the US-China Business Council, which brings together 200 American companies doing business with China, encourages reducing tariffs. In a scenario studied by Oxford Economics where the two governments would gradually lower taxes to 12% on average, from 19% today, the US economy would generate an additional $ 160 billion in real GDP over the next five years. This would create 145,000 jobs by 2025. Also according to this analysis, the average income of American households would also increase.

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