Unpacking China’s Merchandise Trade with ASEAN during the Global Pandemic

INTRODUCTION

The Covid-19 pandemic since early 2019 has drastically disrupted economic activities throughout the world. According to the World Trade Organization, global merchandise trade flows decreased by 5.3% in 2020. Against this backdrop, however, bilateral trade between China and ASEAN bucked the trend and reached $684.6 billion, a 6.7 per cent increase from 2019. This propelled ASEAN to dethrone the European Union as China’s largest trading partner for the first time, while making China ASEAN’s largest trading partner for 12 years in a row.

But there is more going on beneath the surface. The purpose of this Perspective is to move beyond the aggregate trade measures to uncover additional patterns in China’s trade with ASEAN countries during the global pandemic. Using monthly export and import data disaggregated by country and commodity, released by the General Administration of Customs (GAC) of China, this Perspective seeks answers to the following questions: (a) What factors contributed to ASEAN becoming China’s number one trading partner? (b) How did the pandemic and related measures imposed by governments affect bilateral trade between China and ASEAN member countries? (c) What has or has not changed in the trade pattern between China and ASEAN as a result of the global pandemic?

CHINA’S TRADE WITH ASEAN VERSUS OTHER MAJOR ECONOMIES

We start by looking at overall trade between China and its top four trading partners—the European Union (EU), ASEAN, the United States and Japan. The EU took the honour of being China’s top trading partner in 2019 with $707 billion in total imports and exports, narrowly edging out ASEAN at $644 billion. That same year, ASEAN also overtook the United States for the first time, after being China’s third trading partner for the previous eight years.

In 2020, ASEAN passed the EU to take the number one spot right off the bat. As can be seen in the top panel in Figure 1, in eleven of twelve months, bilateral trade between China and ASEAN was higher than that between China and the EU. The only exception was in May when EU logged about $2.5 billion more trade with China than ASEAN.

Figure 1: China’s Overall Trade with Top 4 Partners in 2020

From the top panel in Figure 1, it appears that the pandemic did not hugely impact China’s trade as situations in the country were quickly contained. After a big dip in March, trade rebounded for the EU and the United States and later for ASEAN and Japan as well. However, if we look at year-on-year change in the bottom panel in Figure 1, it is apparent that ASEAN is the only one that has maintained a positive year-to-date change every month. In contrast, EU’s trade with China in the first eight months decreased from a year ago. The United States and Japan took even longer to post a year-to-date increase. In other words, ASEAN’s emergence as China’s top trading partner is a combination of the steady increase in bilateral trade and the relative rather than absolute decline of other major trading partners.

Figure 2: China’s Import and Export with Top 4 Partners in 2020

Additional patterns emerge when total trade is broken down into exports and imports in Figure 2. China’s imports follow a similar, slightly increasing trend and the ranking remains the same—ASEAN, the EU, Japan and the United States. This is in contrast to exports where the ranking of the top three trading partners changes from month to month, with the U.S. taking the overall top spot of the year with $452 billion, followed by the EU ($392 billion) and ASEAN ($385 billion).

Using data from Figure 2, we can additionally calculate the differences between imports and exports (see data appendix A), which show that China ran a trade surplus against its top three trading partners (i.e., ASEAN, EU, and US), though the sizes of the surplus varied over time. Strikingly, China’s surplus with the United States remained large despite ongoing economic and political tensions between the two countries.

CHINA’S TRADE WITH ASEAN MEMBER COUNTRIES

While ASEAN as a whole became China’s top trading partner during the pandemic, there is a wide range of variations across ASEAN member countries. Figure 3 ranks the ten ASEAN member countries according to their imports, exports, and total trade with China in 2020. The ASEAN-6 countries (Vietnam, Malaysia, Thailand, Singapore, Indonesia and The Philippines) accounted for the lion’s share (94.8%) of ASEAN’s total trade with China. In particular, Vietnam surpassed Australia for the first time to become China’s seventh largest trading partner. On the other hand, the trade volumes between China and the four smaller ASEAN economies—Brunei, Laos, Cambodia and Myanmar—were substantially smaller.

Figure 3: China’s Trade with ASEAN Countries in 2020

The rankings of countries are similar when we look at imports and exports separately. One notable exception is Singapore, which ranked second for exports and fifth for imports. This resulted in a trade deficit of $26.4 billion with China, second to Vietnam’s deficit of $35.3 billion. Only three out of the ten ASEAN member countries’ exports to China exceeded their imports from China—Brunei, Laos, and Malaysia. While trade surpluses were small for Brunei ($1 billion) and Laos ($0.6 billion), Malaysia’s trade surplus with China reached $17.8 billion, mostly driven by exports in electrical and electronics products, rubber products, and palm oil and palm oil-based agriculture products, all of which were important raw materials and intermediate goods that saw a surge in demand as production capacities returned to pre-pandemic levels in China.

Only three out of the ten ASEAN member countries’ exports to China exceeded their imports from China—Brunei, Laos, and Malaysia… Malaysia’s trade surplus with China reached $17.8 billion.

Comparing trade figures in 2020 with just a year ago reveals that the pandemic has had divergent impacts on ASEAN member countries. Figure 4 displays cumulative year-on-year changes in both exports and imports and shows how pandemic-induced government measures such as lockdowns and circuit breaks affected trade negatively. In particular, China’s exports to almost all ASEAN countries were negatively affected in the beginning of 2020 when China entered into lockdown. Despite the pandemic, China’s imports from Indonesia, Malaysia, and Vietnam grew stronger (driven mostly by integrated circuits), which likely contributed to the overall positive growth observed in Figure 1.

Figure 4: Monthly Year-to-Date Percentage Change in China’s Exports and Imports with ASEAN Member Countries

In the second quarter of the year, many ASEAN member countries such as Cambodia, Myanmar, The Philippines, and Singapore implemented lockdown measures of varying intensity, and coincidently, their trade with China suffered consequently (as represented by the “V” shape in Figure 4). When such measures were gradually eased in the second half of the year, bilateral trade rebounded for most ASEAN member countries, with positive year-on-year changes in both imports and exports being recorded for Cambodia, Malaysia, Thailand, and Vietnam by the end of the year. Not all countries were able to fully recover though. China’s exports to Brunei, Indonesia and Laos and its imports from Laos, The Philippines and Singapore contracted from a year ago. Laos was the only country that saw both its imports and exports with China shrink by 4.3% and 15.2%, respectively.

SHIFTING TRADE STRUCTURE IN THE PANDEMIC

Did the global pandemic affect what was being traded between China and ASEAN? Table 1 shows China’s top 20 export and import products in terms of value (in billion USD) and percentages (of total imports and exports) with ASEAN in 2020 and 2019 (see Data Appendix C for the descriptions for all product chapters).

On the import side, there are remarkable similarities before and after the pandemic. Only one product category (HS code 3) in the top 20 list of 2019 failed to make it to the same list of 2020. In addition, the value and percentage of these imports are comparable between the two years, resulting in a similar ranking with just a few exceptions (HS code 71, 72, and 98). On the whole, the pandemic did not affect China’s imports from ASEAN in terms of both the type (i.e. extensive margin) and value (i.e. intensive margin) of goods—the top 20 product categories accounted for 91.7% and 91.1% of total imports in 2019 and 2020, respectively.

The picture is dramatically different on the export side with significant reshuffling of the top 20 list. Half of the product categories in the 2019 list were replaced by new ones in 2020. Not surprisingly, these included products related to medical supplies (e.g. surgical masks and protective gears under HS 62 and 63), products with a higher ‘work-from-home’ share such as “furniture; bedding; stuffed furnishings; lamps and lighting fittings” (HS 94), and capital goods such as “iron and steel articles” (HS 73), for which long-term planning implies a different reaction to the temporary shock due to the pandemic.

Furthermore, unlike the imports where the top 20 list before and after the pandemic added up to roughly the same level, China’s top 20 exports to ASEAN in 2020 accounted for 78.3% of all exports, compared to 91.8% in 2019. In other words, China exported a wider range of products to ASEAN, suggesting that the negative effects of the pandemic were concentrated on the “intensive margin”, i.e. the value of traded goods; a pattern that mirrors what happened during the “great trade collapse” following the Global Financial Crisis of 2008.

Over the last few decades, bilateral trade between China and ASEAN saw steady increase in intra-industry trade through which China and ASEAN are linked to the larger global production networks.

Examining imports and exports in the same year exhibits another major change between the two years. Over the last few decades, bilateral trade between China and ASEAN saw steady increase in intra-industry trade through which China and ASEAN are linked to the larger global production networks. One prime example of this is electronic integrated circuits under HS code 85 (“electrical machinery and parts”), the top product category whose combined imports and exports make up over half of the bilateral trade in both years. In 2019, the top 20 import list largely mirrors the top 20 export list, suggesting a high degree of intra-industry trade. In 2020, as the pandemic disrupted global supply chains, intra-industry trade between China and ASEAN declined substantially, which is indicated by the divergence of the top 20 lists for imports and exports.

The impact of the global pandemic on the structure of bilateral trade is also evident in the changes of foreign value added in China’s exports to ASEAN. Foreign value added (FVA) is the foreign content such as raw materials and intermediate goods imported from other countries that is embodied in exports. As such, FVA is a measure of vertical specialization as it captures the extent to which a country is integrated into global production networks through the use of imported intermediates.

Figure 5 plots the foreign value added embodied in China’s exports to ASEAN for 97 HS-2 digit product categories against the export value on the logarithmic scale. Each dot in the figure represents one product category. The dashed lines are the locally weighted regression smoothing curves. In 2019, FVA values were positively correlated with exports, suggesting that China’s exports to ASEAN were highly integrated in the global production networks. In 2020, when global supply chains were disrupted and demands were suppressed in countries heavily hit by the pandemic, there was virtually no relationship between FVA and export values for products with higher foreign value added (> 20%). As a matter of fact, exports in 2020 decreased from 2019 for eight of the ten product categories with the highest FVA in 2020.

Figure 5: Foreign Value Added in China’s Exports to ASEAN in 2020 and 2019

CONCLUSION

A deeper dive into the disaggregated bilateral trade data between China and ASEAN countries in 2020 reveals a number of new patterns. They suggest that the repercussions of the pandemic on other trading partners of a country, and on its own demand for imports from a specific country, will depend not only on pandemic-related measures in the respective countries, but also on the demand and supply of third countries in the global production networks.

In the first quarter of 2021, ASEAN remained China’s top trading partner, but the gap has been narrowing, and may soon be edged out by the EU again, as many ASEAN countries are now struggling with new waves of Covid-19 variants. What’s more interesting and potentially will be of greater significance is the shifting trade structure and the drop in intra-industry trade. Some of these changes certainly can be attributed to the pandemic, but it remains to be seen whether or not these new patterns will persist as firms reorganize and relocate their supply chains in the post-pandemic world.

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This is an adapted version of ISEAS Perspective 2021/93 published on 15 July 2021. The paper and its footnotes can be accessed at this link.