Opinion | China’s strong exports are helping the world fight inflation but may not be good for its own interests

For many countries battling surging inflation amid supply shortages, a steady inflow of quality goods at reasonable prices could be a blessing in their hour of need. While that is exactly what China’s massive manufacturing machine is doing for the rest of the world now, it may not be in its own self interest.

Despite disruptions from Covid-19 control measures, “Made in China” has proved its resilience, a role that no other single economy can easily replace. According to China’s latest customs data, the country’s exports to Asean countries in the first seven months of this year were 18.9 per cent higher than the same period a year ago, while exports to the European Union gained 19.7 per cent and exports to the United States rose 15 per cent in the same period. Just imagine the economic chaos and price tags on shelves without these additional shipments from China.

While a booming export sector can help China stabilise employment and growth, it is not necessarily a cause for celebration for Beijing. China’s export boom also reflects extremely weak consumer demand at home. In other words, goods and production that should have been used to satisfy domestic demand were shifted to exports.

The record-high, single-month trade surplus of US$100 billion in July, therefore, is not a badge of honour for the world’s second-largest economy. It works against China’s long-term strategic goal of achieving trade balance. After years of efforts to boost domestic demand and reduce reliance on exports, China is finding this reliance hard to get rid of.

For trade partners, they cannot complain because they are in dire need of Chinese goods, but they could blame China for producing too much while consuming too little once domestic output picks up. For example, China’s exports to India surged 37 per cent in the January-July period from a year ago, while its imports from India shrank by 36.4 per cent. This is clearly not sustainable.

For China itself, an overly robust export sector is not in line with Beijing’s “dual circulation” strategy, especially when outbound shipments expand at double-digit rates while retail sales, a measure of consumer spending, contract at home.

China’s stated goal is to lift the living standards of its 1.4 billion people so that the country is known not only as a land of frugal workers, but also as a market of sophisticated consumers. The latest trade data is not pointing in that desired direction.