China’s International Import Expo: A test of its open market pledge

Even before former US President Donald Trump’s return to the White House, China’s financial markets are already experiencing a sense of impending turmoil.

When Trump announced his victory on 6 November, the onshore and offshore RMB exchange rates fell to their lowest levels since August, marking the largest single-day drop in about five years. The A-shares, which opened higher in the morning, also turned from gains to losses as Trump’s lead expanded.

Just one day before on 5 November, the stock market had been buoyed by Chinese Premier Li Qiang’s confident remarks about the Chinese economy.

On 5 November, at the opening ceremony of the China International Import Expo (CIIE), Li stated that after the government introduced a package of incremental policies in late September, China’s key economic indicators had in recent days rebounded across the board, and the premier expressed full confidence in achieving this year’s economic development goals.

Li pointed out that the world presently is witnessing various actions that disregard credibility, causing a broken windows effect that undermines established rules. He added that only when all parties uphold their commitments to openness and undertake pragmatic actions, can there be a joint creation of a favourable environment for open cooperation.

It is easy to see that the actions Li referred to as “disregarding credibility” and “undermining rules” include recent moves by the US, EU and Canada to impose tariffs on Chinese electric vehicles. However, Trump — who said “the most beautiful word in the dictionary is tariff” — might take these criticisms as compliments.

Undoubtedly, Trump’s election would have a greater impact on China’s economy, with trade bearing the brunt of the first salvo.

During his first presidential term, Trump initiated a trade war between China and the US; this time during his campaign, he threatened to impose punitive tariffs of over 60% on all Chinese goods.

Last year, China exported US$500 billion worth of goods to the US, which accounted for 15% of its total exports. Oxford Economics’ lead economist Adam Slater estimated that Trump’s tariff measures could lead to a 70% reduction in US-China bilateral trade. UBS Group predicted that China’s economic growth could be halved as a result of the tariffs.

With weak domestic demand, strong exports became a growth engine for China’s economy. The latest data released by China’s General Administration of Customs on 7 November showed that exports in October, measured in US dollars, grew by 12.7% year-on-year, which far exceeded market expectations.

In a report published on 6 November, Macquarie economists predicted that if Trump were to implement tariff measures, China’s exports could decline by about 8% next year. The Chinese government might need a three trillion RMB (US$417 million) stimulus package to offset the impact of tariffs, plus another three trillion RMB to reverse weak domestic demand.

China is not entirely unprepared for this. Previous reports from domestic and foreign media indicated that the meeting of the Standing Committee of the National People’s Congress, which concluded on 8 November, would approve the issuance of more than ten trillion RMB in bonds over the coming years. Now that Trump has won, the fiscal stimulus could be even stronger.

As a result, after the A-shares opened high and closed low on 6 November, they rebounded strongly the next day driven by the consumer sector, which indicated that investors expect the government to introduce more measures to boost consumption.

However, CCTV News reports indicate that the bills reviewed during this session are aimed at alleviating the hidden debt crisis of local governments, rather than stimulating consumer demand. If no policies to boost domestic demand are announced at that time, it will be another blow to market confidence.

Dragged down by weak domestic demand, China’s import growth has slowed this year, with four out of the ten months showing a year-on-year decline. In the data for October released recently, imports fell by 2.3%, more than expected.

Persistently sluggish imports have cast doubt on China’s commitment to “buy global” and affected foreign investors’ confidence in the Chinese market. Statistics from China’s National Bureau of Statistics showed that foreign direct investment into China declined by 19.1% in the first three quarters of this year, reflecting foreign investors’ lack of confidence.

In his speech, Li reiterated that China will further expand institutional opening up and implement more unilateral opening up measures. On the day before the opening ceremony of the CIIE, he also promised during a meeting with select exhibitors and buyers attending the expo that China will continue easing market access and improving the business environment, providing equal opportunities in accessing production factors, qualification licencing and participation in government procurement

The annual CIIE is an important window for China to demonstrate its determination to open up to the outside world. Based on official statistics, both the number of participating countries and companies surpassed that of the previous year, with Fortune 500 companies and other industry leaders reaching a new high.

However, the criticism from the European Union Chamber of Commerce last year, which called the CIIE a “political showcase”, still echoes. A year later, the Chamber is still calling on China to back its commitment to opening up with concrete actions. Amid intensifying trade friction between China and other countries, participating in the CIIE does not necessarily protect the companies.

For example, the US Soybean Export Council has participated in the CIIE for seven consecutive years, and representatives from the council had even admitted that China accounts for over 50% of all US soybean exports. But since the outbreak of the trade war, US agricultural products, represented by soybeans, have become primary targets of Chinese countermeasures. Data from the US Department of Agriculture show that US soybean exports to China are down 23% so far this fiscal year, while corn exports have plummeted 67%.

On the other hand, in late October, the US Department of the Treasury imposed a new round of restrictions on US companies investing in Chinese sectors such as semiconductors, artificial intelligence, and quantum computing. Set to take effect on 2 January 2025, these new rules could make it difficult for “old friends” of the CIIE, such as Qualcomm and AMD, to attend the event. US semiconductor giant Intel did not attend the CIIE this year.

As the world’s second-largest economy, China is simultaneously facing the challenges of sluggish domestic economic recovery and escalating international trade frictions; Trump’s return to the White House adds further uncertainty to an already unclear outlook. As such, China urgently needs to boost internal development momentum and strengthen its foreign trade ties.

Trump, who advocates unilateralism, may leave more room for China to court other countries, which makes the CIIE an even more significant window for China opening up to the outside world. But the past few years have shown that there is still a long way to go from participating in the expo to actually entering the market; gazing through the window with blurred vision does not solve the problem. Only by genuinely creating demand and lowering entry barriers can China truly open its doors and eliminate trade barriers.

This article was first published in Lianhe Zaobao as “中国进博会遇上美国大选”.

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