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VALUE OF CHINA’S OCTOBER FOREIGN TRADE FALLS SHORT OF EXPECTATIONS
In dollar terms, the value of China’s exports in October fell 0.3 percent, year on year, falling far short of the 4.3-percent increase that analysts had predicted, due to the U.S. and European Union buying less.
China’s exports to the U.S., its largest trading partner, declined for a third consecutive month, falling by 12.6 percent, according to CNBC.
Exports to Europe grew in September but tumbled 9 percent in October.
Sixteen million Chinese jobs depend on European consumers, Joerg Wuttke, president of the European Union Chamber of Commerce in China, told CNBC.
The slip contrasts with the 5.7-percent annual increase China booked in September and marks the first year-over-year drop since May 2020 when the COVID War was locking down stores, data service Refinitiv Eikon reported.
China also imported 0.7 percent less in October, more than doubling September’s 0.3-percent drop. Analysts were looking for a 0.1-percent increase.
In contrast, Chinese exports to the Association of Southeast Asian Nations shot up almost 20 percent last month.
Worldwide, China’s exports of home appliances sank by more than 20 percent, toys by almost 18 percent, and shoes by about 11 percent.
However, China exported 60 percent more cars last month, sending 352,000 units abroad as it expands its auto industry’s foothold in Europe, as we report in “China’s Electric Cars Poised to Invade Europe” in this issue.
In fossil fuels, China took in 14 percent more crude oil than a year ago and 8 percent more coal, although natural gas imports were off almost 19 percent.
Barclays bank has predicted that China’s exports will be 2 percent smaller in 2023 than previously expected, growing by 5 percent instead of 7 because the U.S. and European Union will be in recession.
Barclays also cut its forecast for China’s GDP growth next year from 4.5 percent to 3.8 percent.
TREND FORECAST: Europe and the U.S., among China’s top trading partners, are cutting back on imports from China as the two drift toward recession.
China’s economy is now more likely to enter a downward spiral in which its “dual circulation” economic policy suffers on both fronts.
The policy calls for a strong manufacturing sector making goods to export and an equally strong domestic consumer economy.
The latter depends significantly on the former.
As manufacturing weakens amid reduced foreign exports and strict anti-virus shutdowns, consumers will have less money to spend.
As we have detailed, China’s zero COVID policy has inflicted great socioeconomic harm on the nation. Both legs of China’s dual-circulation ambition will be hobbled, at least through 2023 and probably beyond.
Adding bad to worse, instead of the 4.5 percent export growth that had been forecast, in dollar terms, exports fell 0.3 percent in October. Therefore, in addition to the weakening in China, as the falling numbers show, so too is the world economy slowing down.
CHINA PLEDGES TO CONTINUE POLICY OF SEVERE ANTI-COVID LOCKDOWNS
China will not alter its “dynamic clearing” policy of shutting down locations where the slightest outbreak of the COVID vaccine is detected, Hu Xiang, a disease control official with the China National Health Commission, told a news briefing.
The policy also involves quarantines and widespread, frequent testing.
China’s approach is “completely correct, as well as the most economical and effective,” Hu said, noting that the country has not had any widespread or long-lasting COVID outbreaks since the policy has been in effect.
“We should adhere to the principle of putting people and lives first, and the broader strategy of preventing imports from outside and internal rebounds,” she added.
However, policies must be more tailored and should prioritize the needs of elders, disabled, and pregnant people as those already sick, Hu’s colleague Tuo Jia said.
Some areas became overzealous in labeling people as disease risks, Tuo admitted.
“We attach great importance to these problems and are rectifying them,” said Tuo Jia, another disease control official.
TRENDPOST: China’s equity markets surged last week on rumors that Beijing would ease anti-COVID policies, as we note in “Rumors of Gentler Regulations Lift Chinese Equity Markets” in this issue.
The health officials’ news conference seemed to come in response to the rumors, putting them to rest.
With a population of about 1.4 billion people, China reported 3,837 new COVID-19 infections nationwide for 3 November, slightly fewer than the six-month high of 4,045 new cases found the day before. Since they launched the COVID War in January 2020, their Lunar New Year, the Year of the Rat, only 5,226 people have died from the coronavirus according to Worldometers.
CHINA’S ANTI-COVID LOCKDOWNS ROTS APPLE
The Foxconn factory that assembles Apple’s iPhone 14 Pro and Pro Max in Zhengzhou, China, is operating at “significantly reduced capacity” because the city has been shut down to block the spread of the COVID virus, Apple said in a news release.
As a result, Apple’s sales and revenues will slow their momentum in this year’s final quarter, the company warned.
Customers ordering the $999 iPhone 14 Pro on Apple’s website will wait about 31 days for delivery, Apple noted. Less expensive iPhone models still have about a two-day lead time, JPMorgan analyst Samik Chatterjee, a JPMorgan analyst, wrote in a 6 November note to clients.
Money Game
To lift the sagging economy, last Friday, Chinese stock markets ended their best week since 2015 on rumors permeating social media that Zeng Guang, head of China’s Centers for Disease Control and Prevention, had told a Citigroup conference China could reopen its Hong Kong border early next year and that a relaxation of restrictions on international travel could soon follow.
The Hang Seng index in Hong Kong shot up 8.2 percent, the CSI Composite 3.3 percent, and the SSE Composite 5.8 percent. The Hang Seng’s China Enterprises index gained 6 percent.
Also, earlier than expected, U.S. regulators completed their review of audit papers submitted by Chinese companies listed on U.S. stock markets, the Financial Times noted.
The review could prevent the delisting of hundreds of Chinese businesses from U.S. stock indexes.
However, optimism about the review might be premature as more troubles are likely to surface, Liqian Ren, who manages WisdomTree Asset Management’s China portfolio, told the FT.
“I’m not optimistic on the U.S.-China relationship,” she said. “There will be more coming from the U.S. side.”
China’s markets rose as German chancellor Olaf Scholz met with Chinese president Xi Jinping in Beijing, the first visit to China by the leader of a G7 country in three years.
Hang Seng stocks jumped in value following a Hong Kong conference of global investors last week. Foreign investors “bought the dip” and put $3.7 billion into the city’s stock market after share values sank to 13-year lows, the FT said.
However, even after last week’s rally, China’s CSI 300 index remains 33 percent lower on the year so far, once the renminbi’s devaluation is factored into prices, the FT pointed out.
On 5 November, a day after the markets rallied, health officials shot down the optimistic rumors. See details in “China Pledges to Continue Policy of Severe Anti-COVID Lockdowns” in this issue.
TRENDPOST: Because China’s economy is deeply interwoven with the rest of the world, and because its domestic economy remains uncertain at best, China’s stock market remains a speculative play, at least in the near term, rather than a long-term investment. And, the longer they impose draconian zero COVID policy, the deeper their economy will fall.
CHINA’S ELECTRIC CARS POISED TO INVADE EUROPE
At least 10 Chinese automakers are working their way into Europe’s car market, offering electric vehicles (EVs) that either are cheaper than their European counterparts or priced equivalently but with more amenities.
About one in 20 EVs sold in Europe during the first six months of this year were Chinese, the Financial Times reported.
That share will rise to one in every six EVs sold in Europe by 2025, green lobby group Environment and Transport has predicted.
“The market is wide open to the Chinese,” Stellantis CEO Carlos Tavares said in comments last week at the Paris Auto Show, where Chinese car companies BYD and Great Wall had display booths alongside Peugeot and Renault.
“Their ascendancy, say industry leaders and analysts, will reshape the continent’s automotive landscape over the next decade,” the FT reported.
Great Wall is parent of the Ora brand that will market its £30,000 “Funky Cat” model and also its luxury Wey imprint. BYD will begin selling three EV models in Europe before January. They will be priced roughly the same as Volkswagen’s electrics but offer more features, the company said.
Aiways claims to have 10,000 European orders for its cars and luxury brand Nio also has announced plans to sell in Europe.
The Chinese makers will sell their cars at a loss in Europe to establish brands and gain market share, Tavares warned.
“We don’t want Chinese neighbors that sell at a loss in order to undercut European brands,” he declared, calling for the European Union to levy tariffs on cars imported from China.
Tavares’s idea might not gain traction; Asian brands including Honda, Hyundai, Nissan, and Toyota already are fixtures on the continent’s roads.
Nio, another rising Chinese car company, is unconcerned about political opposition, CEO William Li said to the FT. By focusing on “user interests,” the company can overcome “any potential trends against brands from China,” he noted.
Europe’s domestic car makers are likely to limit EV production to squeeze every possible euro out of their legacy gasoline and diesel models before 2025 when Europe adopts stricter emissions limits, analyst Matthias Schmidt told the FT.
That will create market space for China’s EVs, he said.
As China’s market share rises, factories will follow, the FT noted, as has been the case with Nissan, Toyota, Honda, and other foreign brands that have entered Europe and the U.S.
BYD is in discussions in the U.K. and at least one European country about building factories to make batteries and cars, the FT reported. Nio plans to build a plant once it notches 200,000 European sales. Great Wall will look for a site eventually, the company says.
“If Europe wants to maintain the competitiveness of its car industry, [it] must introduce a strong industrial policy to match the Chinese muscular support for EVs,” Environment and Transportation director Julia Poliscanova in comments quoted by the FT.
TREND FORECAST: Several European countries have set dates on which the sale of fossil fuel-powered vehicles will be banned; Fiat and Volkswagen are among the brands that have announced an end to gas- and diesel-powered cars.
As a result, European consumers are primed for EVs.
China’s advantage is its trove of materials needed for EV manufacture, including lithium and rare earth minerals.
In contrast, Volkswagen has announced its inventory of EVs is sold out through next year, largely due to lack of parts. (German automakers have been used to buying wiring harnesses from Ukraine, a trade that ended with the war.)
As China pours EVs into Europe, sales of gas and diesel buggies will slump, especially as the continent faces an energy crisis and works to eliminate imports of Russian oil by January.
Consequently, China will grab a share of Europe’s car market that will be difficult, if not impossible, for domestic makers to recoup in the foreseeable future—assuming the quality of China’s vehicles equals that of Western makes.