Coronavirus Impact on China’s Foreign Trade
Since the outbreak of a novel coronavirus (2019-nCoV), the prevention and control of the epidemic has become China’s top priority for the time being, as it exerts a complex impact on the country’s economy.
Before the outbreak, China’s economic strategy sought to “stabilize employment, finance, foreign trade, foreign capital, investment, and expectations,” collectively known as the “six stabilities.” Of them, foreign trade is considered the most difficult and important task because of tremendous influence from a complicated external environment.
The negative impact of the novel coronavirus outbreak has created new challenges for China’s foreign trade. The epidemic has caused a similar impact to that of the SARS outbreak 17 years ago in some ways, but understandably, the impact this time has been more complex.
Similar but More Complex
Clearly, the outbreak of the novel coronavirus is exerting a severe impact on China’s foreign trade. China must get ready for new challenges threatening the hard-won achievements it has made in stabilizing foreign trade.
Upgrading foreign trade modes will be the primary way for China to transform from a big trading country to a strong trading country for years to come. But the process requires time and cannot be accomplished overnight. China’s foreign trade is still in a special period of development as the country’s competitive advantage in traditional labor resources is evaporating while new advantages have yet to take shape. China’s foreign trade hasn’t developed the immunity to avoid damage from the novel coronavirus, and it needs more care and protection.
China’s accession to the World Trade Organization (WTO) brought huge development dividends to the country. As China became one of the largest trading countries in the world, the marginal effect of its demographic dividend decreased significantly. Meanwhile, countries like Vietnam, Indonesia, and Cambodia have developed increasingly competitive advantages in terms of labor costs.
Because China still maintains favorable conditions such as complete industrial chains and a large-scale economy, international distributors won’t abandon “Made in China” products any time soon. However, the negative impact of the viral pneumonia outbreak in China will likely motivate manufacturers in competing countries to seize more international market share from China.
Amid the rising anti-globalization trend, some developed economies represented by the United States have adopted protectionist policies and exerted pressure on China. So far, China-U.S. trade friction launched by the United States has lasted for nearly two years.
Although the China-U.S. phase-one economic and trade agreement was signed on January 15, 2020, the United States hasn’t shifted from its “America First” policy at all. As the pneumonia epidemic caused by the novel coronavirus brings new challenges to Chinese society, some in the United States are happy to seize the “good opportunity” to suppress China. For example, U.S. Secretary of Commerce Wilbur Ross recently said that the coronavirus outbreak in China could help bring jobs back to the United States.
China’s foreign trade volume during the SARS outbreak in 2003 was far less than it is now. For example, a one-percent decrease of import and export volume in 2019 is equivalent to a drop of nearly 4.5 percent in 2003. However, China’s dependence on foreign trade is much lower now. The ratio of foreign trade volume to the country’s GDP has dropped from 51.3 percent in 2003 to 31.8 percent in 2019. The same proportion of foreign trade decline now would hurt China’s economy less than that during the SARS outbreak.
Clearly, the SARS epidemic and the novel coronavirus outbreak would both cause negative impact on China’s foreign trade. In terms of economic structure, the development of the service sector plays an important role in solving employment problems in China. In 2003, the added value of the service sector accounted for 33.2 percent of China’s GDP, and the figure surged to 53.9 percent in 2019. Today, the service sector contributes much more to China’s economic development than in 2003. Thus, direct losses caused by shuttered businesses after the novel coronavirus outbreak will inevitably surpass that of the 2003 SARS epidemic.
In fact, compared to the manufacturing industry, the service sector is more “non-tradable.” Although China’s services trade has grown rapidly in recent years, the export of services is still much smaller than the export of goods. In this context, the negative impact of the epidemic on China’s foreign trade would be more seen in the secondary industry.
In 2019, the share of the secondary industry in China’s GDP dropped to 39 percent. Although the coronavirus outbreak may exert a great impact on China’s economy, pressure on foreign trade has been mostly absorbed by the manufacturing sector, which no longer dominates China’s economy.
Serious but Manageable
The sudden outbreak of the novel coronavirus represents a big test for China’s foreign trade, but it is far from a critical blow.
Rather than festering for years before exploding, the negative impact of the epidemic on China’s foreign trade will emerge quickly. For example, to better prevent and control the epidemic, China extended the Spring Festival holiday, which would inevitably affect the delivery of export orders. Suspension of visa issuances, flights and industrial exhibitions has curtailed personnel exchanges between China and many other countries. In many ways, the negative effects of the outbreak are already apparent.
However, after the World Health Organization (WHO) declared the novel coronavirus outbreak in China to be a Public Health Emergency of International Concern (PHEIC), the organization stressed that it does not recommend travel or trade restrictions against China.
Rather than “saving face” for China, the move reflected the WHO’s recognition of China’s response to the outbreak, which has been regarded as a pragmatic approach that neither underestimates nor overstates the real conditions of the epidemic.
For the medium and long term, China’s foreign trade will maintain strong endogenous growth momentum. In recent years, the fast upgrading of China’s manufacturing industry has accelerated the transformation of its development mode of foreign trade. In contrast with the period of SARS, many Chinese enterprises have now developed into leading players on the global stage, including Huawei, Sany Heavy Industry and Haier.
Furthermore, “Made in China” products have gained popularity in the global market and have been consumed worldwide, especially in the fields of communication equipment, construction machinery, home appliances, high-speed rail and nuclear power equipment.
The fight against the epidemic has also heavily involved foreign trade as the country has imported more medical equipment, masks, medicine and other supplies.
To address delays in international goods delivery caused by the epidemic, foreign trade departments issued an emergency force majeure certificate to help affected enterprises minimize losses. If the epidemic can be eliminated quickly, suspended trade relations will be easily restored.
Thus, in any time frame, certain countermeasures will be effective in curbing the negative impact of the novel coronavirus outbreak on China’s foreign trade:
First, China should continue to enhance innovation and cultivate new advantages in international competition to consolidate the industrial foundation for the development of foreign trade.
Second, the country should expand market access and improve the business environment to encourage more foreign enterprises to settle in China.
Third, China should find more business opportunities in the international market by promoting the construction of the Belt and Road.
Last but certainly not least, to optimize benefits from industrial and consumption upgrades, China should work to further expand domestic demand and leverage opportunities brought by the expansion of its share in the international market.
This content is provided by Beijing-based China-India Dialogue. The author is deputy director of the International Market Research Institute under China’s Ministry of Commerce.