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China trade data points to accelerated supply chain relocation despite rebound in March exports

March 28, 2023

3 min

Despite a surprising surge in overall exports in March, a supply chain relocation away from China might still be accelerating as shipments from foreign-invested companies dwindled in the first quarter, according to detailed customs data.

Exports from foreign manufacturers declined by 16.3 per cent in the first quarter, compared to the same period last year, the data showed.

The decline was mostly driven by falling shipments from the so-called processing trade, which involves importing all or part of the raw materials and re‑exporting the finished products after processing or assembly by enterprises within the country.

Major products exported under the category include smartphones, computers and integrated circuits, all of which continued to fall in March – in contrast to overall export which rose by 0.5 per cent in the first quarter and 14.8 per cent in March, year on year – though the decline was also compounded by dwindling global demand.

The value of smartphone exports dropped by 31.9 per cent in March, compared with a year ago, to US$8.48 billion, which was the lowest in 19 months, the data released on Tuesday showed.

Around 80 per cent of Chinese smartphone exports belong to the processing trade, according to the customs figures.

A major player behind processing trade exports is Taiwanese multinational electronics contract manufacturer Foxconn, which has based most of its factories in China for the assembly of final products for Apple.

But Foxconn has been increasingly eyeing diversification in countries including India, especially after the prolonged coronavirus-induced lockdowns in its biggest iPhone factory in the central province of Henan last year.

The value of computer exports also declined for the eighth consecutive month in March after falling by 25.9 per cent, year on year, mostly driven by a sharp drop in the processing trade, which accounted for over 60 per cent of total shipments.

The negative growth of the export value of integrated circuits, though, narrowed in March after dropping by just 2.2 per cent, year on year, marking the ninth straight monthly decline amid intensifying efforts by Washington to cripple China’s ability to produce advanced chips.

Major chip manufacturers, such as Taiwan Semiconductor Manufacturing Company, Samsung Electronics and SK Hynix, all have manufacturing bases in China.

With advantages of cheap land and labour, as well as a complete infrastructure network, China had been chosen as the major global manufacturing base for many foreign brands in the past four decades.

But the trend has been gradually reversing amid rising labour costs and simmering geopolitical tensions between Beijing and Washington, and was further worsened by the supply chain disruptions during the three years of China’s zero-Covid policy.

Many multinational companies have accelerated the deployment of “China plus one” and “in China, for China” strategies, by diversifying their investments to other regions, including Southeast Asia.

Last month, China’s shipments to the Association of Southeast Asian Nations (Asean) – the country’s largest trade partner – soared by 35.43 per cent, year on year.

Shipment to the United States, though, dropped by 7.68 per cent compared with the same period last year, marking the eighth straight monthly decline.

“My sense is [the final products] were assembled [in Southeast Asia] and then re-exported to the US to avoid tariffs,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

Huang Qifan, a former mayor of Chongqing, said during a forum in Guangzhou on Wednesday that China’s trade volume with the Asean region had increased by 50 per cent in the past three years.

“The largest source of foreign investment in Southeast Asia is Chinese companies. Chinese companies assemble products there and then sell them to the rest of the world. Parts and raw materials are all imported from China,” Huang said.

“This is a good thing for the world. Our relationship with Southeast Asia has also become closer, and the relationship between Southeast Asia and the United States has also become closer. It’s beneficial for everyone, everyone’s costs have been reduced. Why not?”

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