China Faces Growth Limits... Export Dependence Inevitable for the Time Being

Published 14 Jul.2022 10:54(KST)

Concerns Over Prolonged Domestic Demand Slump as Chinese Leadership Maintains Zero-COVID Policy
Domestic Recovery Difficult for Now, Export-Driven Growth Structure Returns

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China faces difficulties in having to rely on export-led growth in the second half of this year. This is the result of the dual circulation policy, which focuses on domestic demand-based growth, not functioning properly due to the 'zero-COVID' policy.

[Image source=Yonhap News]

The state-run Global Times cited the China Customs General Administration's June trade statistics and reported on the 14th that China's export-import volume in the first half of the year increased by 9.4% year-on-year to 19.8 trillion yuan. The media stated that the trade volume in June alone rose 14.3% compared to the same month last year, reaching 3.7 trillion yuan, which is a significant increase from 9.6% in May.

It particularly emphasized that exports and imports in the lower Yangtze River region, including Shanghai, recovered rapidly and led exports. It reported that the trade volume in the Yangtze River Delta region, including Jiangsu Province, Zhejiang Province, and Anhui Province, increased by 9.3% year-on-year to 7.14 trillion yuan in the first half of this year. The foreign trade volume in this region for June alone was 1.39 trillion yuan, contributing 40% to China's overall trade growth. This indicates a recovery from the shock caused by the Shanghai city lockdown.

The problem lies in imports. While China's export volume in the first half of the year increased by 13.2% year-on-year to 11.14 trillion yuan, imports only rose by 4.8% year-on-year to 8.66 trillion yuan. The slow growth in imports implies that the domestic demand situation is not very good. As of the first quarter, domestic demand accounted for 69.4% of China's Gross Domestic Product (GDP). This is why the Chinese government identified domestic demand as a growth driver during the '14th Five-Year Economic Plan (2021?2025)' period and introduced the dual circulation policy.

In May, China's retail sales decreased by 6.7% year-on-year. Since turning negative in March, it has been in a negative streak for three consecutive months. Although retail sales in July are estimated to have improved, the consensus is that it will take considerable time to return to normal.

Chinese media emphasize that the economy is in the process of normalization ahead of the second-quarter economic growth rate announcement. Conversely, this implies that the second-quarter GDP is not very strong.

In fact, the second-quarter GDP forecast conducted by the Chinese economic media Caijing for economic experts is 0.94% year-on-year. The first-quarter economic growth rate was 4.8%. The overall atmosphere in China is one of satisfaction as long as the growth rate does not record a negative figure.

Within China, voices are emerging that exports must lead growth this year since domestic demand recovery will take time. Accordingly, there are forecasts that China will take a more proactive stance in negotiations with the United States over tariff reductions. This is a situation where the interests of the U.S., facing inflation issues, and China, needing to drive growth through export expansion, inevitably align.

Hu Chi-mu, chief researcher at the Synosteel Economic Research Institute, said, "Relatively inexpensive Chinese products help alleviate inflationary pressures," and predicted that demand for Chinese products will increase in the U.S. and Europe, where prices are soaring.