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China dominates world export markets despite US trade war

Asian countries' supply chain dependence deepens, with RCEP set to boost trend

China's presence in global export markets has increased dramatically during the past two decades. (Source photo by Reuters)

TOKYO/BEIJING -- The extent of the global economy's dependence on China is becoming clear.

With the coronavirus pandemic disrupting global logistics, there has been growing momentum to reduce dependence on China in supply chains. But China's share of global exports is actually rising, and is now even exceeding the level before the Sino-U.S. trade war broke out in 2018. Some believe that the recently agreed Regional Comprehensive Economic Partnership, a free trade agreement between 15 countries in Asia and Oceania, will boost China's presence in global trade yet further.

The number of products of which China holds a high share in export markets is increasing.

Nikkei analyzed data on 3,800 products compiled by the International Trade Center and found that there were 320 products in 2019 in which China held a share of more than 50% in export markets. By comparison, in 2001, when China joined the World Trade Organization, the number was 61 products.

The number of products of which China had a high share stopped increasing from 2016 onwards, when U.S. President Donald Trump took office and then the trade war began, but the number increased again last year.

Exports of China-made small computers accounted for 66% of the entire export market in 2019 at a value of $95.6 billion. The share of liquid crystal components used in personal computers and smartphones also exceeded 50%, and the shares of air conditioners (57%), ceramic washstands and toilet seats (80%), were also high.

There has been a surge in demand for these products due to the coronavirus and stay-at-home-orders around the world, with the pandemic thus spurring the increase in Chinese exports. This trend is clear when the share of China's exports in the major economies was calculated.

In February, China's exports accounted for 14% of the total export values of the Organization for Economic Cooperation and Development countries plus China. The number steadily increased; 17% in March, 24% in April, as Beijing contained the pandemic while other countries struggled.

Since April, the rate has continued to exceed 20%, surpassing the historical annual peak of 19% reached in 2015. The rebound of consumption in Europe and the U.S. over the course of 2020 has also become a tailwind behind Chinese goods, with the latest statistics showing that the country's exports are now above levels before the Sino-U.S. trade war began.

According to the customs office in the city of Tianjin, the largest port in northern China, exports are steadily increasing. Supply chains in China have recovered earlier than in other countries, and manufacturers are increasing their production. One trading company in Tianjin, which asked not to be named, told Nikkei that they have order backlogs of bicycles and furniture of more than two years.

However, the increasing dependence on Chinese goods is a growing risk for importing countries. In Japan, shortages of masks and medical equipment became acute this spring, because Chinese products were less available for import due to fierce global demand for them. Although there is momentum to revise the supply chain, action is slow.

The Japanese government has decided to provide subsidies to companies that will move their factories in China back to Japan, and has received 1,760 applications, including from companies that make semiconductors, liquid crystal components and health care products.

However, many products are not profitable if they are made in Japan, where labor is relatively expensive. China was the source of roughly 80% of protective gowns imported into Japan between May and July. One company which has started production in Japan, and which asked not to be named, claims that it cannot compete with Chinese-made goods unless the Japanese government purchases its products.

Mitsubishi Chemical Holdings President Hitoshi Ochi said production costs and related governmental regulation would be key to companies being able to make these strategic decisions on production. "We are not going to produce in Japan without considering carefully," he said. The company will continue to produce red resin, used in car headlamps, in China.

The RCEP, signed on Nov. 15, might accelerate the trend of China's increasing presence in the region, as it will establish a free-trade zone in Asia. According to a study by the Peterson Institute for International Economics, global exports will increase $500 billion in 2030 due to positive effects such as tariff cuts. China will benefit the most, with the value of its exports expected to increase $248 billion.

The study said: "RCEP will address crucial areas not yet covered or covered only by 'hub-and-spoke' provisions that do not support integrated, multicountry supply chains. With these links, RCEP will encourage further interdependence." As the trade war continues with the U.S., China is expected to accelerate exports to Asian countries, winning market share from India and Taiwan, which are not part of the RCEP.

Japanese companies are aiming to improve their productivity by making high-value-added products at home, but to maintain competitiveness, the strength of China's supply chain cannot be ignored. As Naoto Saito, a researcher at the Daiwa Institute of Research, points out: "Japanese companies need to deepen relations with China, while paying attention to Chinese government intervention in the private sector and protecting intellectual property."

Additional reporting by Iori Kawate in Beijing.

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