Chinese Economics Thread
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US Apartment Developer lowering cost by sourcing materials directly from China
Saw post this on weibo. I think there is at least some logic to this comparison of Russia/China to US/Canada
First he talks about Size comparison. It's true, population and economic ratio is about the same bw China/Russia and US/Canada. But of course in geopolitical heft, military and such, it's not a valid comparison. But let's just talk about economic relationship. That's where i think he is pointing to the similarities
In terms of balance of trade, he is somewhat on point. It's true that you have a complementary relationship in both cases where 1 country sell a lot of energy & natural resources and the other sends machinery. Although in the case of Canada/US, Canada also sends plenty of machines over and America doesn't need to import much oil anymore.
By the way, I'm not 100% sure this is accurate since the import in 2021 look to be around $240B on this chart, but other sources had it at $300B. So there is good chance it's under counting Russian imports.
Anyhow,. It shows Russia's total import in December to be bw $15-16 billion USD. Of which, over $6 billion is in technology. Now, if China did export $8.8B to Russia in that month, It would be more than half of Russia's imports. He said that China has 90% market share in Russia's phone & consumer electronics. That may be true, i'm not sure. But certainly as Russia imports more cars from China through these JVs that got formed at end of last year, that export number to Russia can go up even more.
I also see this
That's about $19 billion more export than import a month. Which would be about $35B a month of export. Based on trade data, China accounted for 25% of Russia's export in December. But as we know, EU refined oil ban from Russia started in February. So, it will be interesting to see over the next couple of months, how much of Russia's export will go to China. There should be even more oil exports and LNG, but pipeline gas can only go up so much. If Russia is selling Nickel to China in RMB, then that would improve Russian export to China of Nickel also.
Let's say 40% of Russia's exports and 60% of Russia's imports are with China by the end of this year. That could be $14B in export to China and $10B in import. That would be close to $300B a year run rate.
Of course, this is likely to continue to increase over the next couple of years as China push out all the Western companies as its brand awareness in Russia continue to improve and as Russia aligns its infrastructure and energy export with China. Could we get to a scenario where over half of its trades are done with China? I would think so.
I don't have the full total, but this website has total of 27 EU countries + China, US, Japan, SK, UK, India & Turkey. Most of Russia's trading partners. I'm sure there are a few to this like Arab countries, but this is most of their trading volume
In January 2022, Russia exported $44.43B to these 34 countries and $23.14B went to EU, with only $7.52B to China.
By October, total export down to $35.57B (probably due to lower oil prices), with $12.96 to EU and $10.23B to China ($4.7B to India)
By Dec (when the first part of $60 oil ban went into affect), total export down to $31.96B, with $10.78 to EU and $9B to China. So China now represents somewhere between 25 to 30% of Russia's exports if we fact in some additional export to other countries.
If we look ahead March, we will have a full month of no refined oil product export from Russia and we know China is importing a lot of that. With more sanctions coming into affect, an increasing % of other Russian resources exports are likely to go to China.
Just a rough estimate that by middle of this year, Russia export drops to around $30B with China taking up around $11 to 12B. For example, if Russians sold around 25 million barrels of refined oil product to EU at $120 per barrel, that's $3B less from Europe and probably $2B more for China and $1B to India & other countries. Not too many other countries have the spare refinery capacity to buy crude or fuel oil and turning that to more refined products. And then you can add some more natural resources like nickel, copper and iron ore from Europe to China.
In terms of import, Russia imported $19.55B in Nov 2021 (Dec was an unusually high import month from China) with $9.63B from EU and $6.54B from China.
After the initial sanctions got imposed, this dropped to $8.05B in April with $3.15 from EU and $3.80 from China.
By December (once companies figured out better how not to get penalized and supply chains got adjusted), this came back up to $15.79B in total with $4.18B from EU and $8.81 from China.
And if you look at an article like this one
We are still at the stage of having Western companies selling their assets for the pennies to Chinese & other investors who will inevitably source parts from China to not get into trouble with law
It seems to me that EU's exports to Russia will drop further as EU tightens some of these loopholes and as Russian importers get more Chinese products and supply chain plugged into their sales channel. For example, Russian car sales is likely to climb this year as more Chinese auto companies set up their operations there. Same with electronics, data centers and ICT.
Given that America has just put Inspur on entity list and Huawei is close to being fully cut off, they might have more incentive to sell stuff to Russia. And same with smaller Chinese local banks that are not afraid of Western sanctions.
Over this year, I'd think that Russian import climb back up to $18B a month with China rising to maybe $11B?
By the end of this year. We could have a situation where China accounts for $23B out of $48B trade that Russia does (so 45 to 50%) with 40% of import and 60% of export. At that point, I think further increases would be a lot more gradual since Russia would need to further orient its economy to Asia over time.
Obviously, this is a very good thing for China's economy. But more than that, it reduces dependence on the West for energy/resource import and allows Chinese businesses to corner a pretty large sized market.
I expect the US to tighten the screws on Chinese exports of some kinds of electronics to Russia. Already we see DJI stop selling their drone products to Russia via Aliexpress, and even Huawei basically got out of the Russian market, their products are sold there as gray imports.
What will likely happen is even more gray market imports, and you will see the rise of white label brands in Russia, there is just no way a 150 million people market, basically the size of Japan, will stay without electronics.
What will likely happen is even more gray market imports, and you will see the rise of white label brands in Russia, there is just no way a 150 million people market, basically the size of Japan, will stay without electronics.
DJI stopped that for like 1 day to both Ukraine and Russia and then immediately revoked it for Russia only. So I think this might have been a purely cynical government ordered move where DJI had to officially ban both sides first and then keep providing to Russia.
Rise of companies that specifically target the Russian market may indeed happen, because there is a large potential. For a long time, China has offered superior products but not had the best market access compared to Western products. Russia will in that regard provide the proving grounds.
I posted my thoughts on MingYang's renewable plans
And Longi's renewable plans
Basically in both cases, they are transitioning from just their old self to more holistic energy companies. Longi is great at technology breakthrough and increasing production. You have to be super well managed to win in China's solar war. MingYang is great at technology and managed to now have the most powerful turbines in the world despite only starting in 2015
In both cases, they are working with Sinopec. MY also works with CNOOC.
Keep in mind that Sinopec processed around 4.8 million barrels per day in 2022
but it keeps announcing new refinery project that will expand its petrochemical business w/ goal of reaching 4 million barrel per day of just liquid to chemical capacity by 2030. That's a lot of additional refining capacity coming online
In order to go green (as I promised to do) and achieve these chemical exports, it needs a whole lot of Hydrogen feedstock. And eventually, it will want to also export a whole lot of hydrogen fuel as methanol or ammonia.
As such, all the investment Sinopec and others are making will eventually make China a huge net exporter of energy and chemicals at the expense of Europeans and OPEC. Huge market here
i wonder if DJI's competitors are also selling to Russia. quite a few smaller drone manufacturers in China, especially those that provide support for agriculture. those drones are bigger and carry a heavier payload, perhaps they are more useful in combat situations.
Exports from China fell 6.8% from a year earlier to USD 506.3 billion in January-February 2023 combined, less than market consensus of a 9.4% drop and following a 9.9% fall in December 2022. This was the fourth straight month of decline in exports, amid weakening external demand due to a slowdown in the global economy. Sales of rare earth dropped 5.6% from a year earlier. Among major trade partners, exports shrank to the US (-21.8%), the EU (-12.2%). Meanwhile, sales to ASEAN and Russia grew 9% and 19.8%, respectively. In 2022, exports rose 7% to USD 3.6 trillion.
source: General Administration of Customs
Imports to China tumbled 10.2% from a year earlier to USD 389.42 billion in January-February 2023 combined, compared with market consensus of a 5.5% fall and after a 7.5% drop in December. Purchases have declined since last October, as domestic demand remained weak due to strict pandemic measures before curbs were removed in December, weaker commodity prices and a stronger dollar. Arrivals of crude oil fell 1.3% yoy, as did natural gas (-9.4%), unwrought copper (-9.3%), and steel (-44.2%). By contrast, imports rose for copper ore (11.7%), coal (70.8%), and iron ore (7.3%). Also, arrivals of rubber grew by 10.8%, while those of edible oil and meat gained 86.9% and 21.2%, each. Imports shrank from the US (-5%), the EU (-5.5%). and ASEAN countries (-8.3%). Conversely, arrivals from Russia jumped 31.3%. Commerce Minister Wang Wentao recently said downward pressures on Chinese imports - and exports - would increase significantly this year, amid the risk of a global recession.
source: General Administration of Customs
source: General Administration of Customs
Imports to China tumbled 10.2% from a year earlier to USD 389.42 billion in January-February 2023 combined, compared with market consensus of a 5.5% fall and after a 7.5% drop in December. Purchases have declined since last October, as domestic demand remained weak due to strict pandemic measures before curbs were removed in December, weaker commodity prices and a stronger dollar. Arrivals of crude oil fell 1.3% yoy, as did natural gas (-9.4%), unwrought copper (-9.3%), and steel (-44.2%). By contrast, imports rose for copper ore (11.7%), coal (70.8%), and iron ore (7.3%). Also, arrivals of rubber grew by 10.8%, while those of edible oil and meat gained 86.9% and 21.2%, each. Imports shrank from the US (-5%), the EU (-5.5%). and ASEAN countries (-8.3%). Conversely, arrivals from Russia jumped 31.3%. Commerce Minister Wang Wentao recently said downward pressures on Chinese imports - and exports - would increase significantly this year, amid the risk of a global recession.
source: General Administration of Customs
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According to news from the website of the General Administration of Customs on March 7, according to customs statistics, in the first two months of this year, my country's total import and export value was 6.18 trillion yuan, a slight decrease of 0.8% year-on-year (the same below). Among them, exports were 3.5 trillion yuan, an increase of 0.9%; imports were 2.68 trillion yuan, a decrease of 2.9%; the trade surplus was 810.32 billion yuan, an increase of 16.2%. In terms of U.S. dollars, the total value of my country's imports and exports in the first two months of this year was 895.72 billion U.S. dollars, a decrease of 8.3%. Among them, exports were US$506.3 billion, down 6.8%; imports were US$389.42 billion, down 10.2%; trade surplus was US$116.88 billion, up 6.8%.
In the first two months, my country's export of mechanical and electrical products was 2.03 trillion yuan, an increase of 0.4%, accounting for 58% of the total export value. Among them, automatic data processing equipment and its parts and components were 183.72 billion yuan, a decrease of 26.7%; mobile phones were 163.35 billion yuan, an increase of 10.5%; automobiles were 96.83 billion yuan, an increase of 78.9%. During the same period, the export of Laomi products was 573.32 billion yuan, a decrease of 7.4%, accounting for 16.4%. Among them, clothing and accessories were 149.89 billion yuan, down 7.5%; textiles were 132.41 billion yuan, down 15.9%; plastic products were 99.25 billion yuan, down 2.1%.