News in Charts: Where does China stand according to RiCArdo?

Over the years, Fathom Consulting has created a wealth of proprietary indicators, many of which originate from bespoke consultancy projects. One such indicator is Fathom’s RiCArdo timeseries database which contains detailed export data for over 200 countries and regions. Its China data are available on the Refinitiv Datastream Chartbook, and have been recently updated to include 2021. This note explores what RiCArdo can tell us about China’s export market share and revealed comparative advantage across the various goods and services subcategories included in the database.

China extended its lead as the world’s largest merchandise exporter in 2021, with a 3.7% increase in exports compared to the previous year. Overseas sales reached USD 3.36 trillion and market share rose above 20% for the first time ever. This exceptional performance can be explained by China’s export dominance in the manufacture of medical equipment and electronic goods needed to work from home, which allowed the country to navigate the worst of the COVID-19 period, while the strong recovery of the world economy during 2021 led to increased demand for China’s exports.

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Machinery goods stood out, representing 43% of total Chinese goods exports, followed by clothing and accessories (12.3 %) in 2021. Exports of arms and ammunition accounted for a mere 0.01% of China’s total exports, but the sector was the sharpest riser, with the value of exports growing by 70% compared to the previous year. In recent years, China has increased its manufacture of military equipment and is now a major player in the global arms trade, recently overtaking Germany as the fourth largest arms exporter in the world. As a consequence, China’s market share has ticked up, as shown below.

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We can use the RiCArdo dataset to identify the sectors in which China has a revealed comparative advantage (RCA), or specialisation, relative to the rest of the world.[1] Notably, it remains least specialised in arms and ammunition, despite the recent uptick in market share noted above. In other words, arms and ammunition still account for a much smaller share of what China exports than is the case for other countries.

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At the opposite end of the spectrum, where China is most specialised, are the categories clothing and accessories and machinery. China remains highly competitive globally mainly due to low labour costs and well-established supply chains. The biggest change in 2021 compared to the previous year was the other manufacturing category (which includes, for example, watches and musical instruments), which moved up to third place ahead of building materials, while chemicals and minerals surpassed food and drink.

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As a manufacturing country which is often referred to as the factory of world, it is perhaps unsurprising that China does not hold a revealed comparative advantage (a score above 1) in any of the ten service sub-categories except construction services. This is most likely driven by the Belt and Road Initiative which aims to deliver construction and investment projects across 147 countries. However, China’s transport services have climbed 36 positions in our global RCA rankings since 2020, with the sector now approaching the key threshold of 1. This is due to much faster export growth in China than the rest of the world over the past couple of years, as shown below. Although shipping is still the main form of services transportation, air freight picked up sharply during the recovery in global trade in 2021. This transport source is growing in importance in China for the distribution of goods for which delivery times are key, such as electronics and pharmaceutical products.

In due course, we will turn our attention to China’s progress in the high-tech sectors outlined by President Xi’s Made in China (MIC) 2025 plan. The plan aims to transform China’s manufacturing base from the current model of producing cheap, low-tech manufactured goods to making technology-intensive goods. Stay tuned…

To find out more about Fathom’s RiCArdo database and how it could help you contact us: enquiries@fathom-consulting.com.

[1] RCA is calculated by measuring China’s exports in a particular sector as a share of China’s total exports, relative to the same calculation for the rest of the world. If an RCA is greater than 1, that sector is more important to that country’s exports compared to the world average, and hence, the country can be said to specialise in that field.

The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.