China seized biggest share of global exports in almost 50 years - while its imports fell sharply

Cranes are seen above piles of steel pipes to be exported at a port in Lianyungang, Jiangsu province, China.
Cranes are seen above piles of steel pipes to be exported at a port in Lianyungang, Jiangsu province, China. PHOTO: REUTERS

SHANGHAI (REUTERS) - Chinese exporters have found a silver lining in weak global demand by seizing market share from their competitors - good news for China but an expansion that is aggravating trade tensions.

At the same time, China's imports from other countries fell sharply - down over 14 per cent in 2015 - leading some economists to suggest China was deploying an "import substitution" strategy that is pushing foreign brands out of its domestic markets.

China's proportion of global exports rose to 13.8 per cent last year from 12.3 per cent in 2014, data from the United Nations Conference on Trade and Employment shows, the highest share any country has enjoyed since the United States in 1968.

The success belies widespread predictions that rising costs for Chinese labour and a currency that has increased nearly 20 per cent against the US dollar in the last decade would cause China to lose market share to cheaper competitors.

Instead, China's manufacturing infrastructure built during the country's industrial rise of recent decades is keeping exports humming and providing the basis for firms to produce higher-value products.

"China cannot be replaced," said Fredrik Guitman, formerly China general manager for a Danish maker of silver products, adding that reliable delivery times were more important than price. "If they say 45 days, it will be 45 days."

On Wednesday, Beijing rolled out fresh measures to support machinery exports, including tax rebates, and encouraged banks to lend more to exporters. Machinery and mechanical appliances make up the biggest portion of China's exports.

Such policies may not be welcomed in the US, where Republican presidential hopeful Donald Trump has called for 45 per cent tariffs on Chinese imports - a message that appears to resonate with American voters.

The risk is that the Chinese firms successfully moving up the value chain will see their overseas profits destroyed by a trade war if Trump's ideas find place in policy.

Critics say much of China's move up the value chain has been the result of pressure on foreign firms to transfer technology combined with a systematic and sustained campaign of industrial espionage targeting foreign technology.

The legions of mid-sized Chinese companies that now make drones, high-tech labels, smart home devices, and wind power equipment may lack the cachet of Chinese social media firms like Tencent, but they are a far greater combined threat to complacent foreign competitors, analysts say.

Privately owned SZ DJI Technology Co Ltd, a drone maker, is an example of how far Chinese exporters have come. The company has taken advantage of the smartphone component manufacturing ecosystem in the southern city of Shenzhen to take 70 per cent market share in the US, a report by investment bank Oppenheimer & Co says.

But while China has expanded its share, that share is of a shrinking pie and the country's firms have yet to develop the branding power of the likes of an Apple or Louis Vuitton.

Much of Chinese industrial innovation has focused on process and production improvements to make products at lower cost but acceptable quality.

That has some worried rising labour costs and a stronger yuan, or renminbi (RMB), will have an impact.

"This has put pressure on firms to upgrade," Li Jian, head of foreign trade research at the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry's think-tank, said.

China's producer pricing power has been falling for four years and the Chinese government sees more rough weather ahead.

"The circumstances surrounding foreign trade this year remain both complicated and gloomy," Commerce Ministry spokesman Shen Danyang said on Tuesday. More than half of 3,000 companies surveyed by the ministry "believe the situation this year is increasingly grim."