In March, China's exports surged unexpectedly, particularly attributed to a remarkable increase in trade with countries involved in the "Belt and Road Initiative" (BRI). This significantly offset the decline in external demand from traditional markets like the United States and EuropeProducts that highlight China's strengths in the industrial chain, particularly the "new three items"—which includes electric vehicles, lithium batteries, and solar cells—recorded exceptional growthLooking at the long-term picture, China's export structure appears to be optimizing, with trade with BRI nations now comparable to that with Western countries.

Since the beginning of 2023, there has been widespread concern regarding export figures, as rapid interest rate hikes in the US and Europe have contributed to a slowdown in the global economy

In fact, as early as the second half of 2022, export growth from China began to falter, with five consecutive months of negative growth reportedSimilar situations were observed in export-driven nations like South Korea and Vietnam during this period.

The significant jump in March export figures caught many analysts off guardAccording to data released by the General Administration of Customs, China's exports (in US dollars) rose by 14.8% year-on-year in March, dramatically increasing by 25.6 percentage points compared to the combined growth rate for January and FebruaryIn the first quarter overall, exports showed a slight increase of 0.5% from the previous year, up approximately 7 percentage points from the last quarter of 2022.

What has driven this remarkable overachievement in March's exports? Several key factors reveal underlying trends in these figures.

One of the core reasons is the surge in exports to BRI countries, which compensated for the decline in demand from the US and Europe

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Furthermore, the high growth in products that showcase China's industrial chain advantages, particularly the "new three items," suggests that this is not merely a short-term spike, but indicative of a longer-term, more robust growth trajectoryChina's export structure is becoming increasingly optimized—moving from a traditional dependence on Western countries towards a balance in trade with both BRI nations and established markets like the US and JapanThis shift is crucial in mitigating the impact of reduced demand from the West, thereby enhancing the resilience of Chinese trade.

The phrase, "when one door closes, another opens," aptly embodies the current state of China's export landscape.

There are several factors contributing to this unexpected export boom in March:

Firstly, the domestic recovery from COVID-19 and the resumption of production played a significant role

From December 2022 to January 2023, the ongoing pandemic and the influence of the Spring Festival led to a reduced operating rateAs these negative influences faded and production ramped up after the holiday, previously delayed orders were released all at once.

Research from Huachuang Securities presents two corroborative points: Firstly, China's export share had significantly lagged behind levels seen in the same months of 2020-2022 due to pandemic-related production restrictionsSecondly, March exports saw marked improvement in labor-intensive products that had previously experienced weak demand, while Vietnam, with its focus on labor-intensive exports, continued to suffer declinesThis indicates that the increases in domestic export figures may indeed be related to a release of accumulated production rather than an overall recovery in overseas demand.

Historically, China’s export figures have demonstrated quick recoveries following periods of pandemic disruptions

For instance, in July and August 2020, exports rapidly rebounded to double-digit growth, and from May to July 2022, growth surged back to over 15%.

Secondly, while demand from the US and Europe has indeed weakened, the demand from BRI and other countries has alleviated some of the downward pressure on total external demandThe General Administration of Customs reported that in the first quarter, trade with BRI countries reached 3.43 trillion yuan, indicating a year-on-year increase of 16.8%, which outpaced the overall growth rate in foreign trade by 12 percentage pointsThe exports to these nations amounted to approximately 2.04 trillion yuan, growing by 25.3%, whereas imports were 1.39 trillion yuan, with a 6.3% rise.

Notably, exports to ASEAN countries experienced rapid growth tooTotal trade with ASEAN reached 1.56 trillion yuan in the first quarter, reflecting a year-on-year increase of 16.1%, surpassing the overall growth rate by 11.3 percentage points

Huachuang Securities estimated that exports to ASEAN contributed about 5.4 percentage points to the overall export growth in March alone.

Thirdly, the structural composition of products exported had a profound impactElectromechanical and labor-intensive products were particularly influential in driving export growthHuachuang Securities identified that electromechanical products contributed 7.2% and labor-intensive products 3.7% to the year-on-year growth rate of March exports, underscoring their importance in the significant increase.

According to customs data, exports of electric passenger vehicles, lithium batteries, and solar cells—the "new three items"—sustained remarkably high growth, collectively reaching 264.69 billion yuan, marking a 66.9% year-on-year increaseThis segment's share of total exports also grew by 1.7 percentage points, reaching 4.7%.

Fourthly, a series of policies aimed at stabilizing foreign trade that have been rolled out since the beginning of the year also lent support to the recovery in exports

Dongwu Securities pointed out that following the Central Economic Work Conference's emphasis on "stabilizing the scale and optimizing the structure" of foreign trade at the end of last year, there have been early preparations for policy implementationSome coastal provinces may have preemptively addressed part of the second quarter’s demand, reflected in local governmental targets and large-scale initiatives to help enterprises secure orders internationally.

However, in the short term, will the unexpected surge in March exports be sustainable? Analysts at Huachuang Securities caution that there remains downward pressure on the total export volumeWhile the recovery linked to increased domestic production may offer support for a while, combined with a lower base for exports in April 2022, short-term export numbers may remain relatively stable

Considering the advantages in exporting electric vehicles, lithium batteries, and solar cells continue to strengthen, and the increased trade with ASEAN, BRI nations, and RCEP economies manifests a potentially persistent strong export structureNonetheless, with the risk of recession looming in the US towards the end of the year and significant recession risks projected for the Eurozone as well, and considering that exports to the US and Europe account for about 30% of total Chinese exports, the overall volume of exports may still face challenges.

Looking at the broader structural trends, the traditional international trade landscape has seen vital shifts over the yearsHistorically, the focus of foreign demand has primarily been centered on the US and Europe, given their status as the largest markets for Chinese exportsHowever, as trading relationships widen and deepen, the contributions from BRI nations have been steadily increasing.

Over the past decade, the share of trade between China and BRI countries has seen marked improvements, climbing from 25% of China's overall foreign trade in 2013 to 32.9% in 2022, according to statistics from the General Administration of Customs

Meanwhile, the combined exports to traditional markets in the EU, US, and Japan represented only 36.6% of total exports in 2022.

This shift in trade dynamics suggests that BRI countries are gaining equal footing with traditional markets in China’s export landscapeFollowing current trends, it is plausible that, in the coming years, BRI countries could overtake the US and Europe to become China’s most significant trading partners.

Dongwu Securities emphasizes that in the complex backdrop of US-China competition, BRI countries are gradually becoming increasingly vital trade partners for ChinaAs these nations play a more prominent role in trade, they pave the way for deeper internationalization of the RMB.

Of great importance is the rising share of ASEAN nations in China's exports

In 2012, ASEAN accounted for merely 10% of China's total exports, but by 2022, that figure had surged to 15.8%. Continuing up to the first quarter of 2023, the share further increased to 16.9%, making ASEAN China’s top trading partner, overtaking the US.

The General Administration of Customs attributes the continued growth of trade between China and ASEAN to several key factors: First, the ongoing benefits from the RCEP trade agreement emphasize ASEAN as a critical partner for China; in the first quarter, China's trade volume with ASEAN accounted for 50.8% of its total trade with RCEP membersSecond, the intertwining of supply chains and industrial chains is accelerating as China's advantages in production complement those of ASEAN countriesFinally, cooperation in energy and agricultural products has deepened, contributing to sustained growth in trade in intermediate products.

Additionally, while the Russian market currently represents only about 2.5% of China's total exports, the rapid growth in trade with Russia over the past two years is noteworthy

With ongoing cooperation between China and Russia, the share of exports to this market is projected to rise furtherNotably, Chinese exports to Russia grew by 33.8% and 12.8% in 2021 and 2022, respectively, with an astronomical year-on-year growth of 47.1% in the first quarter of 2023.

For instance, the automotive sector has seen significant shifts, with numerous car brands leaving Russia in the wake of sanctionsThis void in local production, which has plummeted due to sanctions, is being filled by Chinese automakersData from Autostat indicates the market share of Chinese cars in Russia skyrocketed from 9% in 2021 to 37% by 2022.

In summary, China's reliance on traditional markets like the US and Europe is gradually diminishing, while the significance of BRI countries in trade is on the rise