Over the past few days the media seems to have been catching up with a theme we have been running for some time.The Chinese export push. We can start with this at the weekend from the BBC economics editor Faisal Islam.
As a Chinese made car hits number 1 in UK, and so far this year 15% of UK registrations have been made in China brands (about 1.3% only 5 years ago) I visited possibly the most important new factory in the UK – the facility that will provide Electric Vehicle batteries for JLR from next year, run by its sister company Agratas in Somerset. Cells from raw materials, made in the UK.
As you can see he seems to be trying to spin things in favour of the UK but the real message is quite a surge in exports of cars from China. According to Faisal he has been on the case.
I’ve been writing about the coming surge in Chinese car imports for 3 years, indeed I asked a leading member of Cabinet in the previous Govt what they would do about it , if anything, in 2023… before it happened.
Although he seems to have missed the reality that they are behaving like they usually do which is aim to dominate a market and once control has been established raise prices. Staying with the UK then our government seems to be on its side.
Govt appears to be positioning itself as not wanting to stand in the way of consumer choice, while promoting Chinese investment into UK manufacturing.
This is quite a success for China which will continue with its modern version of what was called mercantilism in the Middle Ages. The UK government by contrast will only wake up when the numbers are much larger and it is too late. Perhaps my subject of the 31st of March which was trade balances will give them a shock.
The Financial Times
It added to this theme as the week began.
The outside world sees unstoppable Chinese champions selling quality products at impossible prices. After racking up a record trade surplus in goods that surpassed $1tn in 2025, China boosted exports by nearly 15 per cent year on year in the first three months of 2026.
In just one example, China’s Jaecoo 7 SUV, with a starting price of £29,000, became the UK’s best-selling car in March.
This is a great success for China but on the other side of the coin selling at “impossible prices” used to be called dumping and the recipient or importing countries would act against it.
Innovation
Let us look at a positive side to this.
Huang Xian’s product is about the size of his fist, a sensor that detects electrical current leakage and slots into electric vehicle chargers as a safety guard between the car and the grid. …..The EV boom has propelled Huang’s sensor shipments to a projected 10mn units this year, up from about 20,000 in 2019, when his company Mega-Senway Electronic Technology entered the market. (Financial Times)
This has been driven by savage cost cutting.
It forces companies like Mega-Senway to move fast. Huang explains how they cut their own costs so dramatically over just a few years. First they acquired the factory that manufactured the sensors they designed. Then he visited nearby factories to study their best practices…..A worker testing their finished sensors initially did it one at a time, he says. Huang redesigned the testing jigs to test four at a time, then eight, with a worker constantly loading or unloading batches. Now he has replaced the workers with robotic arms. (Financial Times)
Indeed if we look further we see that we have the opposite of shrinkflation as consumers get more for less.
BYD, the world’s largest EV maker, saw its average selling price per car fall from Rmb143,100 in 2021 to Rmb119,223 last year. Nio, one of China’s premium EV brands, has lowered the price of its flagship ES8 SUV by about 20 per cent since its 2018 debut, despite packing much more technology into the car. ( Financial Times)
Unfair Competition
The problem is that the ying of innovation above which could have come straight out of an economics text book also has a darker yang.
But, up the supply chain, Huang’s gross margins are approaching zero on some orders and his customers keep demanding lower prices.
It is a similar story across Chinese industry, from chemicals to solar to the manufacturers providing components for the car and wind giants: volumes keep rising but profits are shrinking or negative. ( Financial Times)
When we look at exports if you are competing with overseas producers who need to make a profit then this is the road to dumping. Also there is this.
But when Chinese leaders last month formally launched the country’s five-year plan for 2026-30 they signed off on overwhelming state support for sectors ranging from biomanufacturing to robotics. ( Financial Times)
And this.
China has a ream of policies to help companies get off the ground, with local governments in particular battling with each other to offer the best subsidies, cheap land, financing and tax breaks to lure in manufacturers and seed new industries on their turf.
Indeed such is the scale of this it looks as though there is another feature of it.
Corporate data provider Qichacha lists 1.2mn Chinese companies with “robot” in their name or business scope. Some have recently pivoted from fields like cosmetics, green energy or semiconductors.
Why? To get the cash or if you prefer subsidy farming.
The founder of a robotics company in western China ticked off the subsidies that have helped him get started: grants to help his customers purchase his robots, subsidies to expand his factory vertically instead of horizontally, money for rooftop solar panels and energy storage and a “smart factory” plaque from the provincial government with more attached benefits.
An irony
Just as the media headed in this direction the latest trade figures went the other way.
Exports rose at 2.5% in U.S. dollar terms last month from a year earlier, China customs data showed Wednesday, missing Reuters-polled analysts’ median estimate for an 8.6% growth, and weakening from the combined 21.8% surge in the first two months of the year.
Imports surged 27.8% in March from a year ago, marking the strongest growth since November 2021, sharply beating expectations for a 11.2% rise, and accelerating from 19.8% in the prior two months combined. (CNBC)
Firstly monthly trade figures are unreliable at the best of times. Plus there are reasons to explain the imports surge and we can start with the price of energy.
Comment
The export policy of China is quite a success as we see the inroads it has made into the UK and Europe. Prioritising making things is working and contrasts sharply with this.
since the continent’s high energy prices and labour costs leave it particularly vulnerable to cheaper products from elsewhere.
Let me give these journalists some credit as that view on energy prices is very different to past Financial Times views. Plus China has not only used subsidies there are other features in play.
A further, critical factor is the Chinese currency. Lower inflation relative to Chinese trading partners has led to a real exchange rate devaluation in the past three years…..The IMF estimates the country’s real effective exchange rate — which measures the real value of the currency against a basket of competitors — is undervalued by around 16 per cent, fuelling the competitive advantage enjoyed by Chinese exporters. (FT)
On a personal levelI have long argued that policies for low inflation help economic success. This contrasts with the western central banking toleration of higher inflation and we can see clearly who is winning. To that we can add lower Chinese wages.
So there is a lot happening at once where China has an export success but for the rest of us it poses a trade and a deflationary issue. Some of it is welcome ( lower prices), some of it much less so ( lower wages).