The rise in the renminbi this year has been striking, both on a trade-weighted basis (+8.25%) and against the dollar (+2.29%). The trade surplus remains at record levels. At the beginning of this year, it was suggested that the RMB could rise further if China allowed select defaults and focussed on prioritising ESG.
In terms of ESG, China’s increased use of coal is a major step backwards. But on other metrics, China is forging ahead, particularly in electric vehicles.
China’s trade surplus for transport equipment has jumped this year, hitting a record $58.0bn in the twelve months to October. The rise in the surplus for transport equipment is a key development. It signals an important shift in Chinese manufacturing to higher value-added production.
China’s competitive edge is not just due to lower labour costs either: car factories are highly automated. Tesla has been welcomed with open arms by China, putting pressure on traditional Chinese automakers to innovate and boost productivity. Tesla has created opportunities for local suppliers too, who make increasingly sophisticated components.
Domestic EV sales and production have continued to post very strong growth this year. Nevertheless, the domestic EV sector in China is being threatened by overcapacity. Chinese EV makers are now embarking on an export drive, targeting Europe. The EV race has the potential to shake up automotive supply chains and trade patterns globally.
