CSCMP's Supply Chain Quarterly
October 16, 2019
Monetary Matters
Monetary Matters

Export diversification will change China's relationships

Comment
New ocean shipping options are emerging to handle Chinese exports, especially to its largest trading partner, the United States.

The fact that China's exports have been growing at astounding rates should hardly come as a surprise to anyone these days. What's less well known is that China's trading partners and its export commodities are changing. In response to those developments, new ocean shipping options are emerging to handle Chinese exports, especially to its largest trading partner, the United States.

On average, China's export tonnage grew at a rate of 10.2 percent annually between 1995 and 2005, reaching 417 million tons in 2005. Although the pace of export growth is expected to slow to a long-term annual average of 5.2 percent through 2025, Chinese exports are still forecast to exceed 1.1 billion tons by that year.

Article Figures
[Figure 1] Percent of Chinese containerized exports
[Figure 1] Percent of Chinese containerized exports Enlarge this image
[Figure 2] China's diversifying exports
[Figure 2] China's diversifying exports Enlarge this image

Many of China's exports are containerized; in fact, the country shipped out more than 20 million TEUs (twenty-foot equivalent units) in 2005. Growth in containerized exports, which include such commodities as apparel, office furniture, and toys, is expected to average 8.2 percent over the long term—a faster growth rate than that predicted for Chinese exports as a whole.

The expected tapering of China's export growth rates reflects an economy where foreign market penetration and sales are reaching more mature levels, despite the fact that gross domestic product (GDP) growth has been extremely strong in recent quarters. Regardless, China's sizzling economic expansion will decelerate considerably in the medium to long term because of anticipated weaker domestic growth in many trading partners' economies. Continued monetary tightening by China's central bank will also play a role in that deceleration.

Predictions of slower economic and export growth notwithstanding, China continues to experience an export boom on the back of the low cost of its products. Although some in the media have attributed this to an artificially low exchange rate for China's currency, the renminbi, the reason continues to be China's lax environmental policies and its aggressive use of available labor. China has also actively pursued trade agreements and overseas sourcing deals with developing countries in Africa and South America to ensure a steady flow of the raw materials it needs for export production.

Trading partners, commodities on the move
The United States has become China's largest export trade partner on the strength of its foreign direct investment in China and its growing demand for imported containerized goods. The United States, in fact, consumed 34 percent of China's containerized exports in 2005. So far this relationship has been reciprocal, with both countries playing critical roles in each other's economy.

In the years ahead, though, China will move away from reliance on the United States as its main export customer. Even though Chinese containerized exports to the United States are expected to grow from about 33 percent of all U.S. imports to around 50 percent by 2013, the relative importance of the U.S. market will decline somewhat from China's standpoint. Indeed, China has already begun seeking out new customers for its exports. Latin America (fueled primarily by Mexico) is buying a larger share of China's exports. In addition, one-third of the world's container trade takes place among Asian countries in the "intra-Asia" trade. Despite a diminishment in its relative importance, however, the United States will remain China's largest export partner for the foreseeable future (see Figure 1).

China's top containerized export commodities include furniture, metal products, apparel, plastic items, textiles, footwear, and other miscellaneous manufactured goods (such as toys and souvenirs). China began its manufacturing boom with the production of low-value products with low intellectual-property risk. It is just now approaching full market penetration for items such as footwear—walk into your nearest shoe store and you'll see for yourself. As China approaches market saturation in low-value goods and continues to gain manufacturing expertise, export production is moving up the value chain and penetrating new product areas. Over the next 20 years, exports of office and computing equipment, furniture, electrical goods, and semiconductors are expected to enjoy strong growth and will represent sizeable shares of China's exports (see Figure 2).

Shipping routes begin to shift
Even though China is expanding its trade with other Even though China is expanding its trade with other countries around the globe, the U.S. market is still expected to remain China's largest single export customer in the long term. Current forecasts see the United States importing nearly 34 million TEUs from China in 2025.

The shipping routes for U.S.-bound containers are expected to shift over time. While the majority of containers today (roughly 73 percent) travel from China to the U.S. West Coast, only a portion of that traffic actually remains on the West Coast to serve that market. The balance is transported inland by rail or truck. Population growth in the midwestern and southern United States will reinforce this trend. However, concerns over long-term rail capacity and toll increases imposed by the Panama Canal Authority to pay for the canal's expansion may change the way China's exports reach North America.

Some shipping lines are announcing new all-water services from Asia to the U.S. East Coast via the Suez Canal, while others are planning to take larger ships through an expanded Panama Canal. New and/or expanded port facilities in locations like Lázaro Cardenas and Punta Colonet in Mexico and Prince Rupert in Canada (which is two days closer to Shanghai than Los Angeles/Long Beach) will give carriers more options to maintain reliability, control costs, and serve North American markets effectively.

As purchasing power increases around the world and trade is increasingly liberalized, China is realizing that the United States is no longer the only game in town. Still, continued growth in the U.S. market's demand for Chinese exports is driving innovation in ocean shipping. Any new practices that develop will surely spread globally, promoting more trade among other countries.

Maria L.C. Bertram is international trade consultant for Global Insight (www.globalinsight.com), which provides consulting services, data, and forecasts for more than 200 countries and many industries. Global Insight's trade & transportation practice specializes in consulting, data, forecasts, and analysis for global trade and transportation trends.

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