Strong China export growth：merchandise trade or supply chain reconfiguration？

AnalystEva YISAC No.SD57052100005SFC No.AMH263evsyghtac.com+(852) 3658 6000 Huatai Research 13 August 2024 | China (Mainland) In-depth In January-July 2024 (7M24), China's export value in USD terms rose by 4% yoy,and yoy growth in export value in RMB terms (6.7%) and that in export volume (c.15%) notably outpaced that in domestic demand.Meanwhile, contributions madeby extemal demand to GDP and corporate profit growth continued to increase on ahigh base last year, with the trade surplus in 7M24 increasing by 11% yoy and itsproportion in nominal GDP in 1H24 rising by 0.4pp yoy. At the beginning of 2024,we were optimistic about the overall resilience of China's export growth; in additionChina's exports, industrial upgrades, and the flourishment of cross-bordertofundamentalsfactors such astherapid improvement inthecostperformance ofe-commerce,we have noted the potential boost from enterprises'faster overseasexpansionto China's exportgrowth. While it is dificult to tell product exports from overseas production capacityincome, employment,global manufacturing landscape, and trade policy._Given theexpansioninterms.of data,the_two.have differentlong-term impacts on domesticupcoming changes in the US presidency and Senate, the risk of global tradefrictions is on the rise, likely to motivate Chinese companies to go global at a fasterpace.inourview.Thisreporthascome upwitha"system aimedatkeepingtrackof the progress and destinations for Chine's overseas capacity expansion" fromthree dimensions: intermediate goods trade,raw material and machinery exports,and changes in China's outbound direct investment (ODl) As we have noted, overseas_expansion by Chinese firms has re-gathered steamsince 2023, At present, while Southeast Asia may have accounted for the biggestexpansion in Latin America (Mexico and Brezil), the Middle East (the UAE andSaudi Arabia), Africa and Hungary is significantly accelerating I.Overseasproductionexpansion-aperspectiveofintermediate Some final goods exports may evolve into intermediate goods exports onthe back :of supply-chain expanslon overseas, in our vilew. China'sintemediste goods exports jumped after 2020 and accounted for a half of its totalhave maintained double-digit annualized growth in the past three years. The shareof China's intemediste goods exports to Southeast Asia/Europe, South Americaand the Middle East/the US in China's total intermediate goods exports hasincreased significantlylgone up/contracted. As for 20 typical categories: Telecommunicationsequipment(mainlycomponents),electroniccomponents, textiles, steel, batterles, and auto parts & tires haveSpecifically, the proportion of steel and electronic component exports hasaccounted for more than 70% of China's exports of intermediate goods.edged up, while that of battery exports has markedly risen, up from less than1% in 2013 to nearly 6% now. The proportion of exports of intermediate goods related to automobilesand steel to Mexico, Brazill, the UAE, and Vietnam has notablyincreased, while that to the US, Japan and South Korea has contracted;separately, exports of battery-related intermediate goods to Europe, theUS and SouthKorea havegrownfast. ll.Progressinoverseas plant constructionaperspectiveofrawmaterial and machinery exports Southeast AsiahasremainedtheforemostdestinationofChina'sgrowth in such exports to Brazil and Mexico so far in 2024, we are positiveabout the prospects for such exports to the two countries going forward.Enterprises'equipment purchase - > commissioning"; for instance, steel and some constructionmachinery exported by China may be partially used for plant construction. Raw building material exports: when it comes to China's steel exports,growth in such exports to the Middle East. Southeast _Asia_ and SouthAmerica has been faster.of construction rmachinery like bulldozers (used in the early slage of plantconstruction) has decelerated from 50% (an ultra-high level) in 2021 toaround 10%, while that in exports of cranes (used for hoisting purposes) hasbeen rising to over:50% in 2024 ytd. Il. Deepening expansion in Asia, Africa and Latin America evidencedby changes in China's overseas investment In 2023, despite the cyclical decline in yoy growth of China's exports, thecountry's ODI achieved structural growth, potentially partly suggesting theview, According to data at end-2022, ASEAN/Lalin _Arnerirca received the mostinvesiment from China, accounling for 2a/25% nf QDI, According to data onEnterprise Institute (AEl), yoy growth in China's overseasinvestmentRepublic._of the_Congo,_ Singapore, Hungary and _Malaysia received the mostinvestment from Chinese players, of which Saudi Arabia, Indonesia and Malaysiamaintained robust investment growth in 7M24, In addition, China's investnent insome African and Central Asian countries has impressed in 2024 ytd. Risks: a slowdown in global trade growth; potential acceleration in overseasexpansion due to intensifying trace frictions. Contents I. Overseas produ