Just as the world economy is struggling to recover from the COVID-19 pandemic, the war between Russia and Ukraine, two major exporters of energy and foods, has prompted some countries to turn inwards. For example, both India and Indonesia have imposed export bans to stabilise their domestic prices. This global price volatility is also placing increasing downward pressure on the Chinese domestic economy.
In 2021, China’s goods trade reached US$6.05 trillion (39.1 trillion RMB), increasing by 21.4 per cent from 2020. Of this total, China’s exports and imports are valued at US$3.36 and US$2.69 trillion (21.73 and 17.37 trillion RMB), increasing by 21.2 and 21.5 per cent respectively over the previous year. In the first quarter of 2022, China’s exports and imports rose by 13.4 and 7.5 per cent respectively, resulting in a 36.6 per cent trade surplus increase compared to the same period in 2021.
These figures clearly indicate that, despite its stringent zero-COVID policy, China remains a major goods supplier and consumer in the world market. As such, China continues to be a significant contributor to global price stability.
Take, for example, fertiliser. Crucial for crop production, the global price of fertiliser is mounting sharply due to supply chain disruptions caused by the Ukraine invasion. China’s policy on fertiliser exports in 2021, introduced in response to rising global inflation, is raising concern.
But according to statistics from China’s customs, China recorded a 56.1 billion RMB (around US$8.4 billion) trade surplus in fertilisers in 2021. In the first quarter of 2022, China’s fertiliser exports and imports were valued US$1.787 and US$1.047 billion. This is an increase of 11.2 per cent and 42.2 per cent respectively, compared to the first quarter of 2021, although the volume traded has declined substantially.
Like many other economies, China is facing tough internal and external challenges. China’s domestic supply chain disruptions and weak domestic demand, mainly due to its zero-COVID policy, has added a high level of uncertainty to the country’s economic outlook. China’s export growth is also expected to decline in the second quarter of 2022 as a consequence of domestic production and supply chain disruptions in Shanghai and other manufacturing cities placed under lockdown.
In the meantime, foreign demand for Chinese exports may decline as other major economies recover from COVID-19. Like many other countries, China has made some adjustments to its trade policies to meet domestic demand and stabilise prices in response to the challenging global economic environment. But it is also true that a major country like China should shoulder more responsibility for the world economy. While export bans may stabilise domestic supply and price levels in the short run, they may also hurt a country’s credibility with its trading partners in the long run.
China’s trade policy should be considered in the wider context of the global macroeconomic environment. It would not be constructive to claim that China alone is somehow responsible for world price volatility. Rather, judgements on a country’s trade policy should be determined under the World Trade Organisation’s (WTO) framework. Criticisms made in respect to a few specific goods traded by some specific countries without considering the wider domestic and global macroeconomic environment, is not useful in addressing global challenges.
Faced with severe global economic and geopolitical challenges, all countries — including China — should aim to work together by adopting cooperative trade policies within the WTO framework. By refraining from making unilateral trade policy changes, further systemic disturbances to the global economy can be avoided. China should be fully aware that its trade policy decisions — made in response to domestic economic challenges — could negatively impact its trading partner relationships. Needless to say, the same is true for other major economies in the world.
Minquan Liu is Professor in the Department of Development Economics and Founding Director of the Centre for Human and Economic Development Studies, Peking University.
Yuming Cui is Associate Professor in the School of Economics and Management, Harbin Institute of Technology, Shenzhen (HITSZ).