Workers pack newly produced face masks at a factory in Beijing. Chinese exports of textile yarn and fabric products, which include masks, rose 22 per cent year on year in November
Workers pack newly produced face masks at a factory in Beijing. Chinese exports of textile yarn and fabric products, which include masks, rose 22 per cent year on year in November © Jiang Qiming/China News Service/Getty

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Hello from Hong Kong, which is now on its fourth wave of coronavirus and can perhaps stake a claim to having had the most waves of any major city. Fines have been increased and diners-per-table have been reduced, but overall cases remain low compared with the situation in Europe and the US.

Our main article today is about the relationship between coronavirus — including both its current and future waves around the world — and China’s striking trade performance over recent months. Policy watch focuses on UK prime minister Boris Johnson’s planned trip to Brussels for crucial trade talks and the main sticking points to a deal, while our chart of the day looks at big demand for storage freezers as Covid-19 vaccines are rolled out.

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Pandemic-related products fuel export boost

When China’s exports rose 9.9 per cent year on year in September, the country’s trade performance was looking pretty good. When they rose 11.4 per cent in October — the fastest rate in 19 months — it was looking even better.

So after November’s striking growth of 21.1 per cent, it’s worth asking the question: is this as good as it gets?

China’s dominance of global trade because of a pandemic that originated within its borders is one of the most unexpected consequences of the coronavirus crisis. It has been driven in part by exports of the kind of products that a world plunged into intermittent states of lockdown relies on, at a time when other exports have found it more difficult to adapt.

This gives rise to a high-level ambiguity. On the one hand, China’s strong trade data might be seen as a proxy for the recovery of global demand. On the other, it might be seen as a sign of the crisis persisting.

Ting Lu, chief China economist at Nomura, pointed out that exports of textile yarn and fabric products, which include face masks, rose 22 per cent year on year in November, while medical devices, including ventilators, rose 38 per cent — in both cases above the growth rate in October. He suggested this was “likely due to a second and more severe wave of Covid-19 in overseas economies”.

For products required by those working from home, the data point in a similar direction. Exports of home electrical appliances rose 62 per cent in November, compared with just under 40 per cent in October.

Container ships at a port in Shanghai. Instead of huge financial relief to maintain domestic demand, China opted for supply-side measures that helped expand industrial production
Container ships docked in Shanghai. Instead of huge financial relief to maintain demand, China opted for supply-side measures that helped expand industrial production © Qilai Shen/Bloomberg

The impressive gains come despite a continued strengthening of the renminbi, which on Friday touched its strongest level since 2018 and has added 6.5 per cent this year. The conventional wisdom suggests that a stronger currency would hurt exporters, but these are not conventional times.

The direction in which China’s exports are flowing is also telling. Despite well-documented tensions between the two countries this year, total exports to the US were up 45.5 per cent year on year in November — the highest growth rate since 2003 after adjustments for lunar new years. Exports to the EU were up 25.9 per cent. Export growth to Japan, where the virus is less rampant, was more muted at 5.2 per cent.

Mr Lu offered an insight that helped in part to explain this dynamic. He highlighted the “massive financial relief” in developed economies to maintain consumption demand and suggested that these policies, combined with seasonal demand, had helped prop up appetite for working-from-home and protective personal equipment. This contrasted with the situation in China, which he noted was the first economy to emerge from the pandemic, and where the government had opted instead for supply-side measures that had helped expand industrial production.

So what happens if the pandemic retreats? Tommy Wu, an economist at Oxford Economics, expects a rotation from goods to services consumption in 2021 as a result of wider vaccine availability. That, along with the one-off nature of many of the purchases, means he expects China’s export performance to be less impressive next year, even though a recovery would continue to support growth.

HSBC’s Erin Xin, in addition, notes that exports of non-pandemic related products were up 21 per cent in November, compared with 7 per cent on average in the third quarter, and that growth in pandemic-related product exports is not as high as it was earlier in the year. That implies that China’s continuously improving export performance has a broader base to it than the direct effects of the pandemic.

But temporary stimulus measures to support the economy — especially incomes that governments have provided to households — may have sustained demand even for products that are less obviously tied to the pandemic.

As such, those trying to forecast the future of China trade need to consider the western policies, as much as the products, that the pandemic has given rise to.

Charted waters

Demand for ultra-cold storage freezers has spiked as governments and manufacturers prepare to ship Covid-19 vaccines around the world and along the so-called last mile to those most vulnerable to the disease. Unique characteristics of the two leading Covid-19 vaccines mean they both have to be transported frozen.

Diagram explaining how an ultra-low temperature freezer for storing vaccines works and how it differs from a normal freezer

Policy watch

UK prime minister Boris Johnson in Downing Street on Tuesday before heading to Brussels for crucial trade talks
UK prime minister Boris Johnson in Downing Street on Tuesday before heading to Brussels for crucial trade talks © Andy Rain/EPA-EFE/Shutterstock

Boris Johnson is to travel to Brussels for make-or-break talks on a UK-EU trade deal, with negotiations deadlocked and warnings that there was “every chance” they may fail. The British prime minister will meet Ursula von der Leyen, European Commission president, “in the coming days” as nine months of talks on a post-Brexit relationship between the two sides come to a head.

Despite another day of intensive talks, Brexit negotiators failed on Monday to resolve persistent disagreements that have dogged future-relationship discussions since they began in March, with three big sticking points remaining.

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