Game of Trumps

Chinese rail exports sets to grow?

After a tumultuous month, there has been some respite from all the talk of trade war this week and the news on Tuesday was that China’s economic growth held steady in the quarter to March, despite Beijing’s war of words with Washington.

Growth came in at 6.8% compared to a year earlier, only slightly down on the full-year figure of 6.9% in 2017, and above the target of “around 6.5%” for 2018.

The economic data comes shortly after the release of last month’s HSBC Navigator survey, which offered a more comprehensive review of trade and business confidence worldwide. And for the Chinese respondents, the mood isn’t quite as miserable as some of the newspaper headlines would imply, although admittedly the responses were compiled at the turn of the year (from over 6,000 businesses in total, across 26 markets) before President Donald Trump fired his opening salvos on steel and aluminium tariffs.

In fact, Chinese companies ranked as some of the most optimistic in the survey, with 89% expecting to see trade volumes rising in the remainder of the year, compared with 77% of respondent firms worldwide.

Perhaps that will change in the survey’s next edition, although it’s not that the Chinese had a rose-tinted worldview, with 71% fearing that foreign governments were becoming more protective of their domestic firms, and 48% frustrated that it is getting more costly to do business overseas.

There was similar anxiety for companies in other markets and a common response is doing more business closer to home. Almost three-quarters of cross-border trade in Europe and Asia-Pacific is being conducted by companies in their respective regions, the survey suggested, and the trend seems set to deepen, with regional ties getting priority in planning terms.

Concerns like these crystallise the importance of cross-border programmes like the Belt and Road Initiative, which is targeting investment in trade and transport infrastructure, often in some of the world’s least-developed regions.

Internationally, four out of every 10 respondents in the survey thought that Belt and Road spending would have a positive impact on their business, but Chinese firms were much more enthusiastic than their peers, with 77% anticipating a boost from President Xi Jinping’s signature foreign policy.

Belt and Road investment was also a feature in the survey’s forecasts of the Chinese export sectors likely to grow fastest. Transport equipment is one of the contenders (train manufacturers like CRRC) and ICT manufacturers are also standout performers (Huawei is already prominent in the rollout of communications infrastructure, especially in emerging markets).

A more global theme for the Chinese firms in the survey is the increased prominence of services exports over the medium term, with expectations that services flows will grow faster than the goods trade.

In part, that’s a result of the new spending power of China’s middle-class, which is driving a thriving business in exports like tourism and travel (see our Focus Issue on China’s outbound tourists last month).

Of course, there are still going to be plenty of hard commodities like coal, chemicals and soybeans that are bought and sold in the traditional way.

But many of the newer trade flows are just as likely to be formatted as data downloads or design releases, which means that future HSBC Navigator studies will have to contend with revolutions in the supply chain as new technologies take hold.

For instance, as 3D printing reaches industrial scale how is that going to change the way intermediate goods are sourced by manufacturers, for example? And how might the deluge of new data released by the Internet of Things shorten the timelines for order cycles and product releases? This will make it harder to distinguish between the exports of goods and services in the not-so-distant future, and Chinese companies are going to be at the forefront of change, not just in manufacturing the goods, but also in developing the technologies that transform how they are made.

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