Downturn in Chinese Economy May Be Triggering An Export Surge

by King & Spalding

There is consensus among western economists and policymakers that exports are critical to economic growth. The Chinese government clearly agrees. A souring Chinese domestic economy and improving western economies, particularly in the United States, appear to be combining to trigger a surge in Chinese exports.

In recent years, growth in the Chinese economy has been fueled by booming domestic construction and other factors, such as significant government subsidies, but the Chinese real estate sector now appears to be in trouble. For example, a recent banking stress test involving HSBC concluded that China could suffer from a 50 percent reduction in property prices, thus confirming a widely-held concern. This development is significant for U.S manufacturers, because the Chinese construction industry accounts for nearly a fifth of China's GDP, and a declining real estate sector translates into a declining construction sector and, therefore, a declining domestic economy. The resulting excess production capacity in many sectors likely will lead to an increase in exports.

Chinese exports to the United States already are rising. Although most of China's January 2014 economic indicators declined, China's exports rose 10.6 percent compared to January 2013. Observing this trend, Leo Gerard, the President of the United Steelworkers Union, commented, "as [the Chinese] economy slows, they are going to flood the U.S. with more and more of their excess capacity." The declining Chinese construction industry cannot possibly absorb the output of a steel sector that has grown tenfold in 12 years to the point of consuming half of the world's iron ore. Moreover, China's increasing exports include more than steel products. During the winter of 2013-14, many categories of U.S. imports of Chinese goods have been rising, including apparel, kitchen cabinets, and toys. Meanwhile, the Chinese trade deficit is shifting in ways that affect not only established U.S. industries but also industries based on new technology. The U.S. trade deficit with China increasingly involves higher-value technology products, such as consumer electronics, while it has started to shrink for certain lower-value categories, such as shoes.

U.S. policymakers have focused on diplomacy in their attempt to correct the undervalued Chinese currency, the renminbi, as a way to address the burgeoning trade deficit with China, but that effort also may be facing resistance as Chinese growth rates decelerate. When addressing the trade deficit with China in January 2014, U.S. Treasury officials reportedly cited the valuation issue, saying the renminbi remained significantly undervalued and that rebalancing remained incomplete. It now appears that rebalancing has stalled. By late February 2014, the U.S. appreciation strategy was undermined by China's central bank, the People's Bank of China, which reportedly began quietly helping exporters by intervening heavily in currency markets, pushing the renminbi down steadily. Although U.S. policy may have contributed marginally to the renminbi's 3.1 percent appreciation against the dollar in 2013, in less than two months of 2014 the Chinese currency has given back 1 percent of its value against the dollar.

Another commonly-espoused view is that the rising trade deficit would be forced down by increasing Chinese labor rates, and wages in China have indeed increased. For example, the New York Times recently wrote that in only ten years entry-level wages in China grew from about $75 a month, with virtually no benefits, to $670 per month, including $100 in government mandated benefits. However, in recent years the state-owned banking system has been pumping credit into the Chinese economy, which has allowed manufacturers to invest heavily in automation, production capacity, and other factors leading to increased productivity. Consequently, labor costs are not increasing nearly as fast as wages. In fact, despite higher wages and the appreciating renminbi versus the U.S. dollar during 2013, rising productivity and manufacturing overcapacity resulting from government subsidies combined to push down the prices Americans pay for Chinese goods. Consequently, in 2013 the average price of Chinese imports dropped nearly 1 percent. That trend is likely to continue.

-Jef Denning

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.