Record China trade surplus but its zero tolerance on Covid could prolong disruption

Mon 17 Jan 2022
Posted by: Noelle McElhatton
Trade News

China posted double digit growth export growth in every month of 2021 to record an annual increase of 30%, but growth in its wider economy stalled.

Trade dominance during the pandemic helped China export $3.36tn of goods last year.

“External demand was probably the biggest growth driver last year,” Larry Hu, chief China economist at financial services company Macquarie, told the FT.

“China’s supply chain capacity has held up much better than the rest of the world, so it gets a larger share of the pie,” he added.

According to Reuters, China’s trade surplus in 2021 was the highest since records started in 1950 at $676.43bn, up from $523.99bn in 2020.

Disruption coming

December alone saw a record increase of 21% in exports, but some analysts think figures may soften in the coming months amid growing disruptions at ports.

China reported a total of 143 local confirmed Covid-19 cases for 13 January, its health authority said on Friday, including in the key northern port city of Tianjin.

Chinese GDP growth was at its slowest in 18 months in Q4 2021 at 4% according to the National Bureau of Statistics (NBS), reports the FT. 

Growth slowing

While China “maintained the leading position in economic growth”, according to Ning Jizhe, head of the NBS, its “domestic economy is under the triple pressure of demand contractions, supply shock and weakening expectations”.

Strict ‘zero Covid’ measures to eliminate all coronavirus cases, such as lockdowns of cities and ports will continue to affect supply chains, reports CNBC.

Bottlenecks amplified

Although bottlenecks are expected to ease in the early months of this year, ongoing zero tolerance will amplify supply chain pressures, said Katrina Ell, a senior economist for Asia-Pacific at Moody’s Analytics.

“So, we would start to see material downward pressure on things like producer prices, input prices that kind of thing. But given China’s zero-Covid policy and how they tend to shut down important ports and factories — that really increases disruption,” she said.

The world could face the “mother of all supply-chain stumbles” this year, Frederic Neumann, co-head of Asian economics research at HSBC, warned clients last week, reports Fortune.  

US Federal Reserve chairman Jerome Powell also warned US lawmakers that “if China sticks to a no-Covid policy, Omicron can really disturb the supply chains again”.