China’s General Administration of Customs just announced that exports increased 15.3 percent in May over May of last year, which was twice as fast as economists expected. Additionally, May surpassed December 2011 as the biggest month ever for Chinese exports. China’s trade surplus has expanded every month for the last three months, causing further trade tensions with the U.S.
As European economies slump and unemployment inches back in the U.S., Chinese factories are outperforming rivals in developing countries and the U.S., gaining larger market share even though global demand is down.
“Our sales have picked up significantly and we’re now overbooked,” said Roger Lee, chief executive of the TAL Group in Hong Kong, one of the biggest suppliers of high-end dress shirts to department stores and luxury brands in the U.S.
Chinese exports rely heavily on the U.S. market. China’s exports to the United States increased 23 percent year-over-year in May, while its exports to the European Union increased only 3.2 percent.
China’s export success is due to a combination of long-term investments in automation and short-term depreciation of its currency, which has caused great concern in the U.S.
Manufacturers across China are investing in labor-saving equipment, reorganizing shop floor management and taking many other measures to control labor costs, which have been rising sharply.
The move to automation, which is consistent across many industries, is the main reason Chinese imports in the U.S. are becoming cheaper. Data from the Bureau of Labor Statistics in the United States show that average prices for goods imported from China went down in April for the first time in nearly two years despite double-digit increases in labor costs.
Rising Chinese labor costs have not benefited China’s rivals in developing countries, Japan and the West because automation is offsetting the erosion of China’s competitiveness.
As the domestic Chinese economy slows, the government is taking currency action to help exporters. The Chinese government allowed the country’s currency, the renminbi, to fall nearly 1 percent against the dollar last month. A weaker renminbi makes Chinese goods less expensive in foreign markets, and makes imports less affordable in China.
The strong Chinese exports in May came after a much weaker month in April, when shipments to Europe decreased. But American demand for Chinese goods has been consistently strong.
The big question is the extent to which manufacturers can continue to offset rising labor costs with investments in automation and the reorganization of inefficient work practices.
With China’s domestic economy slowing down this year as construction and retail sales decrease, the country is creating a surge of exports to save millions of jobs in Chinese factories. This has caused trade tensions with the U.S., where leaders ponder the idea of imposing duties on Chinese goods as a warning to end what is perceived as China’s unfair practices.