Tariffs, Exports, Consumption: Are They a Concern?

Recently, China's financial assets have attracted significant global attention. Investors from around the world are eager to acquire Chinese assets, flooding into the A-share market at an unprecedented pace. This surge in foreign capital has been met with diligent research and strategic planning in China's promising sectors. Remarkably, last week the CSRC's CSI 300 index saw a weekly rise of 5.5%.

The primary market in China is also presenting a robust performance, with various sectors and individual stocks witnessing substantial increases. This reflects an optimistic market sentiment regarding China's technological innovations and industrial upgrades. Investors across the globe are increasingly recognizing the allure of Chinese assets and are actively seeking opportunities to participate in this dynamic landscape.

Amidst this resurgence, one noteworthy statistic that has flown under the radar is the record amount of share repurchases by Chinese-listed companies. As of the end of October this year, the total repurchase amount for A-shares and Hong Kong stocks combined reached a staggering 350.3 billion yuan. Specifically, A-shares accounted for 148.2 billion yuan, while Hong Kong stocks contributed 202.1 billion yuan, both figures representing historic highs. In stark contrast, the equity financing during the same period totaled 349.2 billion yuan, with A-shares at 236.4 billion yuan and Hong Kong stocks at 112.8 billion yuan. For the first time, the amount of stock repurchase has surpassed the scale of equity financing, marking a historic turning point rarely seen in the past.

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You might wonder, what does this signify? To put it into perspective, consider the capital market as a reservoir. The water level of this reservoir is determined by both the inflow and outflow of water. When companies raise funds from shareholders, they are effectively releasing water — hence acting as the outflow. Conversely, when companies buy back their shares, it resembles opening a tap to introduce more water into the reservoir. Traditionally, the outflow has far exceeded the inflow; however, we are witnessing a historical moment where the inflow surpasses the outflow.

This is a fundamental reason why the water level in the market is rising. Despite external uncertainties, the market continues to improve, driven by inherent factors at play. The historic repurchase figure exceeding concurrent equity financing is a monumental event that enhances the attractiveness of investing in China's capital market. It also signifies a crucial shift for the Chinese stock market from being primarily a "financing market" to transitioning towards an "investment market."

Speaking of external factors, many are understandably concerned about tariff uncertainties and their potential impact on exports. Much of the business growth outlook hinges on the ability to engage in international trade.

On November 7, the General Administration of Customs released the import and export data for October. In dollar terms, exports in October displayed a year-on-year growth of 12.7%, manifesting a month-on-month increase of 1.8%.

According to data from Guangfa Securities, the year-on-year growth rate of 12.7% is the highest recorded since April 2023. Notably, exports in October have historically shown seasonal downturns, often reflecting negative month-on-month growth rates over the past two decades. However, in October 2024, exports displayed an unexpected positive growth rate of 1.8%.

The topic of "export grabbing" has been a recurring conversation since 2018. Each time there is turbulence in the U.S. or other regions, the narrative of "export grabbing" surfaces. Subsequently, many analysis firms caution against the risks of declining exports.

Since 2018, China's exports have remained resilient, continuing for six consecutive years. This prompts a reflection on whether we have underestimated the resilience of China’s foreign trade dynamics or overestimated our interpretations of events. If the narrative of "export grabbing" has persisted for years with no end in sight, retaining the label of 'grabbing' clearly seems to have lost its relevance.

Let me share another statistic: During 2018-2019, fears surrounding tariff issues were at their height. Back then, the average export tariff rate to the U.S. escalated from 3% to a staggering 21%, yet Chinese exports to the U.S. soared from $480 billion to over $500 billion by 2023.

We must occasionally ask ourselves: is this concern rooted in emotion or fact?

Often, worry is merely an emotional reaction, while numerical evidence represents a concrete reality.

Why have exports from China continued to grow despite rising tariffs?

A recent article discussed the interdependence between China and the U.S. As the U.S. pursues a policy of reducing dependency on China, China's trade dependency on the U.S. has also been diminishing. As of September 2024, the proportion of goods exported to the U.S. from China has fallen to approximately 14%, and the proportion of goods imported from the U.S. has reduced to about 6%. There remains a high indirect dependency on third-party nations.

In essence, this means that China's direct exports to the U.S. are increasingly minimal. Whereas previously U.S.-China trade was point-to-point and holistic, these transactions are now more fragmented, with Chinese entrepreneurs distributing their products and capabilities across the globe, before potentially reaching the U.S. market.

According to statistics from the Caixin International Research Institute, in October, China experienced significant export growth to nearly all countries. Exports to the U.S., Canada, the EU, Japan, ASEAN, Latin America, Russia, and Africa rose by 8.1%, 19.1%, 12.7%, 6.8%, 15.8%, 22.9%, 26.7%, and 20.9%, respectively.

This clearly illustrates a crucial point: even under higher taxation, Chinese products still offer exceptional value. As global trade barriers intensify, inflation in foreign markets escalates. Ordinary consumers abroad are similarly affected by rising prices, leading to an increased demand for high-quality, affordable goods—of which Chinese manufacturing is well-equipped to provide. Additionally, China has not only developed into a vast market but has also emerged as a global hub for manufacturing, technology, and capital.

As the pursuit of cost-effectiveness becomes a global trend, some express fears that the momentum of consumption upgrades may be stalling.

After all, the once-celebrated Double Eleven shopping gala, held annually for eight years, has been canceled. The expenses previously allocated to this event are now fully redirected toward subsidies for merchants and consumers.

Across various categories, a marked shift toward value-seeking behaviors is emerging. This suggests that certain categories have diminished in importance to users. For example, with a plethora of entertainment options available today, including variety shows, reality TV, and concerts, the notion of a grand shopping gala has become less significant. Consequently, fewer individuals are inclined to attend live events. Yet, in the areas that people genuinely yearn for, require, and pursue, consumption continues to evolve and upgrade.

Consumption upgrades within a society is not merely about enhancing product prices or quality; it often signify a fundamental shift in consumers' focus. For instance, services-related spending, previously revolving around tourism, hospitality, and food, is now expanding vastly. Yet, unmet demand remains strong in the realms of health, lifelong learning, educational pursuits, and personal growth—indicating vast potential. In summary, the essentials that people genuinely desire and pursue are continually evolving and advancing.