(Yicai) June 16 -- In the first five months of this year, China’s integrated circuits and automatic data processing equipment and their components contributed 50.5 percent and 47.5 percent of the increase in exports and imports, respectively. This indicates that the current rapid growth of the country’s trade is deeply influenced by the global artificial intelligence boom.

This also means that China needs to keep a close eye on the evolution of the global AI market. If AI-related capital expenditure suffers any setbacks or if international semiconductor component prices were to fall, the negative impact on the nation’s imports and exports as well as economic performance would be significant.

According to the latest data from the General Administration of Customs, China’s exports in Chinese yuan terms jumped by 13.8 percent in May from a year ago, up 4.0 percentage points from the previous month, and imports grew by 24.5 percent, up 0.9 point. These are the highest levels for the month since 2022.

Data showed exports surged by 11.8 percent in the first five months from the same period last year, up 0.5 point from the first four months, and imports rose by 20.5 percent, increasing by the same. The year-on-year growth levels of exports and imports in this period were also the highest since 2022. 

As import growth is much higher than that of exports, the cumulative trade surplus reached CNY3.14 trillion (USD464.6 billion), down 6.8 percent from a year ago, marking the first year-on-year drop in the same period since 2021.

In the past two years, China’s trade surplus has been rising, and it exceeded USD1 trillion last year. But in the first five months of this year, the surplus has decreased, not because of a slowdown in export growth, but because of a surge in imports. There has been a trend of “rising volume and value” in both imports and exports.

Terms of Trade Are Seen Softening

China’s import price index has risen faster than the export price index this year, indicating that the terms of trade (calculated as “export price index / import price index × 100”) are weakening.

Data showed that in the first four months, the index of terms of trade was 93.5 on average, slightly lower than the 96.97 in the same period last year and last year’s average of 97.3, indicating a further weakening of China’s terms of trade this year.

It should be noted that since March, the US-Israel-Iran conflict has been raging in the Middle East, leading to a surge in international energy prices. This has raised concerns about China’s import costs rising faster than export prices and thus weakening the terms of trade. However, so far, China’s import price index has only reflected the driving effect of rising prices of non-ferrous metals, including precious metals, and the impact of the unstable situation in the Middle East and the energy crisis has not yet manifested.

Concentration of Import and Export Growth Is High

According to the statistical bulletin released by the customs agency, integrated circuits are the largest contributor to China’s import and export growth. In the first five months of this year, China’s IC exports contributed 34.9 percent of the export growth in the same period, accounting for 8.1 percent of total exports, up 3.2 points from the same period last year.

IC import growth, meanwhile, was 46.6 points higher than the average import growth, contributing 35.5 percent of the increase in imports in the same period, and taking up 18.9 percent of total imports, up 3.4 points from the same period last year. Both the export and import proportions hit record highs.

During the same period, China’s automatic data processing equipment and its components, such as laptops, servers, motherboards, and memory products, contributed 15.6 percent of the increase in exports and 12 percent of the rise in imports. Combined with IC, they contributed 50.5 percent of the increase in exports and 47.5 percent of the increase in imports. This indicates that the current high growth in China’s imports and exports is also deeply benefiting from the global AI market.

Based on further analysis of customs data, IC import and export prices generally rose in the first four months of this year, but the increase in the export price index was generally faster than that of imports. Except for February, the terms of trade index for other months was above 100, with a four-month average of 116.06, compared with 98.59 in the same period last year and the average of 106.48 last year.

This indicates that China’s terms of trade index for IC is improving, and the non-price competitiveness of domestic chips has increased despite pressure from trade restrictions.

China’s Auto Exports Are ‘Trading Price for Volume’

Another major contributor to the rapid growth of China’s exports this year has been the auto sector, including parts. In the first five months, exports increased by 45.5 percent, contributing 12.7 percent to the increase in exports in the same period.

But unlike IC, the import and export price indexes for automobiles have both tended to decline year on year. In the first four months of this year, export price contributions in the export growth were negative, at minus 16.6 percent on average, compared with minus 10 percent in the same period last year. Export volume contributions were positive, at 116.6 percent on average, versus 110 percent a year ago. This may reflect the current competitive situation in China’s auto exports where “price is traded for volume.”

(The author is the global chief economist at BOC International China.)

Editor: Tom Litting