From ‘Made in China’ to ‘Bought in China’?

Hello from Hong Kong, where rumours abound of a potential travel bubble with Singapore, generating an air of tentative excitement over the prospect of a trip to what is ultimately an extremely similar place.

As in mainland China, where hundreds of millions of domestic tourists flocked to major sites during the recent Golden Week national holiday, most people are stuck within one set of borders right now. But that isn’t true of the goods they require, which brings us to our main piece for the day: China’s demand for steel, and what this says about its role in global trade beyond the Covid-19 pandemic.

Policy watch examines UK businesses’ concern about the rapidly approaching end of the Brexit transition period while our chart of the day looks at demand for robots as the pandemic upends old ways of working.

China’s steely recovery

Something unusual happened to China’s steel trade in June: the country became a net importer of the metal for the first time since the financial crisis in 2009, according to S&P Global Platts.

This was despite the fact that China’s steel mills were at that point running at their highest ever daily rate of production. The shift from net exporter to importer reflected a rapid recovery in the world’s second-largest economy, where the government has supported industrial production and construction has boomed at a time when other economies continue to flounder in the face of the coronavirus pandemic.

Fast-forward to September, and the spectacle of imports flooding into China warrants further attention. Last month, the country imported more goods in dollar terms than in any in its history, surpassing the previous record in 2018. Imports of steel products leapt 160 per cent year on year, according to HSBC.

Steel, which helped galvanise China’s recovery from the last crisis, is playing a central role in its emergence from this one. Investment in property is up 5.6 per cent over the nine months to the end of September. The government has unleashed a wave of infrastructure spending, backed by local government borrowing.

Average daily steel output has remained above 3m tonnes a day for four months in a row, according to Mysteel Global calculations, based on official data. China’s share of global production has jumped markedly.

This has been good news for commodities exporters. Despite its continuing geopolitical feud with China — which has reportedly affected its coal industry — Australia has shipped huge quantities of iron ore, a key ingredient in steel. As for the metal itself, S&P Global Platts suggested in July that Japan, South Korea, India and Vietnam were all “likely beneficiaries” from increased Chinese demand.

China has for decades been a major importer of commodities, which have fuelled its extraordinary rate of growth. But the coronavirus-induced shift in steel — and the country’s rate of recovery from the pandemic — hints at the possibility of gradual changes in the country’s trade dynamic.

Consumption is recovering in China with retail goods sales rising 3.3% last month © Andy Wong/AP

September’s import boom, for example, was not limited just to steel and iron ore. Economists at Oxford Economics point to a jump in agricultural imports, as well as electronic parts. In the case of the latter, this was partly down to stocking up ahead of trade sanctions from the US. Imports of semiconductors rose 28 per cent year on year, according to HSBC.

As with steel, though, that data also emphasised the benefit that China’s recovery offers to other exporters. In Taiwan, a major producer of electronics, exports in September rose to their second-highest level on record. Exports to China increased more than 15 per cent year on year. Just as China’s appetite for steel appears to have surpassed its rate of production, demand for other products might encourage further imports into China as the recovery continues.

Partly thanks to that recovery, the renminbi has strengthened by more than 4 per cent this year — when trading resumed after the recent national holiday at the start of October, it jumped by the most in 15 years.

A stronger currency makes foreign goods cheaper. Consumption is now recovering: retail goods sales rose 3.3 per cent year on year in September, far beyond their level in any other month this year. For other economies struggling to shift their goods overseas, China may start looking like an increasingly attractive option, especially if stimulus measures supporting consumption in the west are curtailed.

It is far too early to suggest that the country is anywhere close to shedding its status as the world’s most prominent exporter. Indeed, even as imports have risen, its share of global exports leapt to a record high this year. In September, exports rose 10 per cent year on year. China’s trade surplus was $37bn in September.

But, if the rest of the world’s woes continue, it is at least possible to imagine a grander, albeit gradual, shift in the country’s relationship to global trade. The world has learnt the expression “Made in China”. It might now need to learn the meaning of “Bought in China”, too.

Charted waters

Robotics and automation-related international trade and output volumes have increased in many countries, bucking the overall downward trend in global trade, writes Valentina Romei. US goods imports contracted 11 per cent in the first eight months of the year compared with the same period last year but imports of industrial robots rose 5 per cent, according to data from the US International Trade Commission. That growth was outpaced only by a rise in pharmaceutical imports. The automation and digitalisation industries are among the corporate winners from the pandemic, which is spurring a shift in how companies use technology.

Policy watch

Carolyn Fairbairn, director-general of the CBI: ‘It’s undoubtedly very serious if we head into November without a deal’ © Jason Alden/Bloomberg

UK business leaders fear that a government campaign to inject urgency into Brexit preparations might be too little, too late, with many companies already struggling to survive the pandemic and still in the dark about the impact of leaving the EU, write Daniel Thomas and Peter Foster.

Less than three months before the end of the UK’s Brexit transition period, the government has launched a new campaign warning businesses that “time is running out” to prepare. But with companies focused on surviving the Covid-19 crisis, managers reported that they lacked both time and financial headroom compared with last year when the UK faced the prospect of crashing out of the EU without a transition agreement. 

Businesses say they are still not armed with the basic information needed to prepare for the likely friction heading their way, particularly in the event of a no-deal scenario — including a new IT system for pre-declaring goods exports, precise rules covering VAT and the movement of data.

Carolyn Fairbairn, director-general of the CBI, said businesses were “finding it really difficult to prepare because they don’t know what for”, pointing to research showing that many companies thought the transition period would be extended beyond December 31. “It’s undoubtedly very serious if we head into November without a deal,” she added.

Don’t miss

• The UK government is planning post-Brexit changes to some of the most contentious aspects of insurance regulation in a move likely to signal a departure from EU rules, having launched a review of the way Solvency II is applied in the UK.
  Read more

• Passengers flying from Heathrow will from Tuesday be able to get tested for Covid-19 for £80 with a result within an hour, the UK airport has announced.
  Read more

• What will Xi Jinping’s China do next? FT global China editor James Kynge takes a look at three timely new books which examine how Beijing regards itself and projects its power across the world.
  Read more

Tokyo talk

The best trade stories from Nikkei Asia

• What would a Joe Biden presidency mean for trade in Asia? Many believe continued tensions with China are inevitable but that a new US president would focus on strengthening Washington’s alliances in the region.
  Read more

• Sales of niche devices that aid remote learning and working, such as a document camera made by a Taiwanese company, have boomed during the pandemic.
  Read more

Source: Economy - ft.com