China Leans on Factory Power and Low
Price Yiwu Supplies to Counter Trump’s Tariffs
In Washington, China hawks say its economy
is too weak to withstand a tariff shock. In the city of Yiwu, factories are showing
why, for now, that may be a miscalculation.
As trade tensions with the United States escalate,
China is using its vast manufacturing base as leverage in its economic showdown
with Washington. While American officials claim China’s weakening economy
cannot endure another tariff shock, industrial hubs like Yiwu tell a
different story — one of factories still humming and exports diversifying
beyond the U.S.
Manufacturers in Yiwu, the world’s largest
wholesale market city, are shifting focus to Europe, Southeast Asia, and
Africa after losing American buyers. Supported by government subsidies and
a weaker yuan, China’s exports hit $328.6 billion in September, the
highest this year, even as shipments to the U.S. fell 27 percent.
Behind the export boom, however, lies a fragile
domestic economy: deflation, collapsing property prices, weak wages, and
falling consumer demand are forcing Beijing to double down on overseas
trade to sustain growth. Analysts warn this export-heavy strategy is risky, as
other countries may soon impose new barriers against Chinese goods.
Still, for many Chinese producers and foreign
buyers, China’s factories remain indispensable. As one Tanzanian entrepreneur
in Yiwu put it, “China has many opportunities.”
With
trade hostilities between the world’s two economic superpowers back on, China has
sent the unmistakable message that it is ready to fight. A week ago, it invoked
its grip over virtually the entire world’s supply of critical materials, breaking
a delicate trade détente between the two countries.
Beijing
feels it has another ace card: its booming factories. Even in the face of sky-high
tariffs by President Trump, China’s manufacturing sector is helping to maintain
growth and give the country’s top leader, Xi Jinping, a stronger hand to face down
the United States.
The
strength is on display in the city of Yiwu, home of the world’s biggest wholesale
market, where sellers peddling toys, home electronics and drones are stuffed into
complexes that span multiple city blocks. Last week, Yiwu unveiled another trade
center, a facility the size of hundreds of football fields
to house exporters and “showcase China’s hard-core manufacturing power to the world.”
Like
many vendors in Yiwu, Gong Hao used to sell his plastic Hawaiian leis, party streamers
and bunny ears to Americans. This year, he lost his U.S. customers but gained new
buyers in Europe and Southeast Asia.
“American
customers have little impact on us,” Mr. Gong said.
China’s
factory prowess, helped by the government, is part of a tectonic shift taking place
in the economy and hitting shores near and far as China sends more of what it makes
to more places. Its trade surplus with the world this year — over $875 billion —
is marching toward a record. Those exports accounted for as much as one third of
China’s economic growth over the past year, a development that experts say will
be hard to sustain.
The
strategy is both necessary and perilous. The surging exports are flashing a warning
sign about the broader Chinese economy, which is going through what economists call
a deflationary shock. Data released on Monday showed that growth was stagnant over
the summer as retail sales faltered. And China’s strategy to trade more with the
rest of the world comes with the risk that other economies throw up their own barriers.
“Trade
is effectively what’s keeping the lights on for China’s economy,” said Han Lin,
the country director for the Asia Group, a consulting firm, and a former senior
Wells Fargo banker in China.
Nearly
a quarter of Fiona Zhou’s rubber chickens, ducks and other squeeze toys go to the
United States. Her company, Kaqu Toys, delivered full-year orders for American importers
in July and August, when Mr. Trump’s record-high tariffs on China were on a 90-day
pause. She said she had given her customers a 5 percent discount to soften the blow
of the higher costs caused by the tariffs. Now, with tariffs back on, Ms. Zhou is
redirecting products once popular with Americans to Southeast Asia and South Africa.
At
the Global Digital Trade Center, where she and dozens
of other toy companies recently moved in, officials let vendors use internet that
bypasses China’s Great Firewall so they can hawk their goods on platforms that are
banned everywhere else in China, like TikTok and YouTube, Ms. Zhou said.
The
whiplash of Mr. Trump’s on-and-off tariffs is a headache, Ms. Zhou said. “It’s like
your friend arguing with you all the time — what can you do?”
China
needs to keep exporting overseas because it can’t find buyers at home.
Ye
Chaoli sells snaggletoothed
Labubu dolls, plush cartoon character toys and Hello Kitty
rhinestone paraphernalia. Half of her business is devoted to selling in China, the
rest to foreign markets like Russia.
“Business
is getting worse,” Ms. Ye said. “Because of the current economic downturn, especially
after the Covid-19 pandemic in China, the economy has been struggling.”
A
grinding property crash in China that began four years ago has destroyed most household
savings and continues to weigh heavily on sentiment. To soften the blow of the economic
downturn, the government is subsidizing manufacturing.
The
signs of stress are everywhere. People are anxious about their incomes and cautious
about spending money. Households instead have been saving nearly as much as they
did during the pandemic, when people faced indefinite lockdowns with no end in sight.
Prices
across the economy are also plunging, and there is little prospect that they will
turn around. Youth unemployment is high. Urban wages have slowed to a record low,
and in some industries they are shrinking. The cost of
land, critical for local government revenues, has tumbled.
China’s
renminbi currency, tightly managed and pegged to the U.S. dollar, has also weakened
against many of its trading partners this year, though last week China’s central
bank boosted the currency by setting its benchmark rate at its highest level in
a year. The cost of capital is down as the central bank continues to cut rates.
Yet
while these are all bad signs for the economy at home, they are making China’s exports
overseas even more attractive.
“As
things get worse at home, their exports get more competitive,” said Christopher
Beddor, deputy director of China research at Gavekal Dragonomics.
“The bottom line is that between the deflationary shock and depreciation in currency,
China’s exports are just mechanically becoming way more competitive compared to
many other countries.”
China’s
exports in September grew at the fastest pace in six months to $328.6 billion, the
largest monthly total this year, according to data released last week by the General
Administration of Customs. Shipments to the United States dropped 27 percent, but
they are surging just about everywhere else.
But
China’s dependence on the rest of the world for its resilience in the trade war
hangs on other countries’ staying open to its exports. It is already being met with
resistance in some countries, including in Southeast Asia, where Chinese shipments
have increased more than anywhere else in the world.
Still,
the demand for competitive Chinese goods is strong. The Yiwu International Trade
City, one of the city’s six sprawling complexes for foreign trade, was buzzing one
day last week, as dozens of buyers haggled over prices with stall owners. A toy
drone buzzed near bystanders, and a robot dog sat upright, waiting for its bone.
Two men sat in camping chairs shooting plastic AK-47 guns with rubber pellets.
Among
the chaos, Rhoda Nghelembi, 26, an entrepreneur from Tanzania, was looking at metal
bangles and earrings. She has visited the city from her hometown, Dar es Salaam,
seven times over the past three years, taking back goods to sell not just at home
but in Kenya, Uganda and Congo.
“I
see my future growing so big and rich because of China,” Ms. Nghelembi said. “China has many many
opportunities.”