News in Charts: China’s high-tech exports resilient

Each year, Fathom Consulting updates its proprietary RiCArdo dataset, which includes detailed export data for more than 200 countries. The dataset allows us to track trade developments between countries, including export market share and revealed comparative advantage (RCA) across more than 1000 different goods and services subcategories. The RiCArdo dataset also includes trade data grouped by the sectors which constitute the ‘Made in China (MIC) 2025’ plan. The MIC 2025 plan was introduced by the Chinese government in 2015 with the goal of transforming the country’s enormous manufacturing base into a high-tech powerhouse, and the RiCArdo dataset gives insights into whether China is moving successfully in this direction.

The RiCArdo dataset shows that, after a sharp improvement in 2021 driven by unprecedented demand for some MIC goods such as medical equipment during the COVID-19 pandemic, the share of China’s exports represented by MIC goods has retreated slightly in 2022. Fathom’s estimate contrasts with a much higher figure reported by official sources and also with World Bank estimates; however, we believe that both of these flatter the true picture, by including some sub-components that are not actually part of the sectors targeted in the MIC plan.

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Despite some progress in moving up the value-added chain over recent years, as captured by China’s rising export share of MIC goods, there is still a long way to go before China achieves its goal of becoming a high-tech powerhouse. The US, Japan and Germany, which are the countries that China is trying to emulate, all export a higher share of Made-in-China goods. In particular, the US share is 26%, whereas Japan and Germany share is 25% and 24% respectively. This contrasts with 19% for China.

The majority of the goods that China exports are still part of the “old” manufacturing sectors, accounting for 81% of the total. Improving this figure going forward will not be an easy task, since China suffers from a significant legacy issue in its industrial structure.

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So China has still room for improvement in transitioning its enormous manufacturing base into a powerhouse of high-tech production, but with regards to external rebalancing it has succeeded in gaining market share. China now has the world’s largest market share in MIC goods, at 13.2%, comfortably above other countries such as the US (9.3%) or Germany (7.1%).

Looking at individual sectors, China has increased its market share relative to 2021 in six out of the nine we monitor, notably in advanced railway. However, it has lost significant ground in the key category of IT, giving up its top spot in favour of Taiwan[1].This is probably due to intensifying US export restrictions on China, a policy initiated by the Trump administration and continued by President Biden. Over the past few years, the Chinese government has increased its rhetoric about digital transformation, and pledged to become the world’s leading provider of technology. However, if the US continues to implement restrictions, with its allies potentially joining its efforts, we anticipate a very challenging road towards China’s international aims.

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Fathom’s proprietary RiCArdo dataset also enables us to identify sectors in which China shows a revealed comparative advantage (RCA), or degree of specialisation relative to the rest of the world. On this metric, RiCArdo suggests that China’s progress has been limited, holding a comparative advantage in only four of the nine high-tech sectors targeted by the MIC 2025 plan — the same number as in 2010 — as the PRC remains specialised mainly in the ‘old’ manufacturing sectors. The MIC sector in which its specialisation is greatest by far is advanced railway, after China built the world’s largest network of high-speed railways, representing around two thirds of the world’s total. Its RCA in IT has retreated slightly, in line with the fall in market share, but for now IT continues to be an area in which China holds a relative specialism: in other words, it exports more IT as a share of its total exports than is typical globally.

On the other hand, in other MIC sectors such as aerospace, the medical industry or robotics, China specialisation still lags behind. Nevertheless, there has been significant progress in China’s robotics RCA. This can be explained by both a sharp increase in China robotics exports and a fall in world robotics exports. According to the US tech-focused think tank ITIF, the Chinese government has been making massive investments to develop this industry domestically, and thanks to this Chinese robotic companies are increasingly expanding their presence in the global market. However, they primarily adopt a strategy of rapid emulation, focusing on cost-competitiveness while depending on advanced Western firms for critical components. Going forward, continued progress in this sector is not guaranteed, and will depend on China’s capacity to produce its own technologies, reducing its foreign dependency in a context of geopolitical tensions.

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Overall, our RiCArdo dataset suggests that China has been more successful in external rebalancing than it has at internal rebalancing, with its global market share in high-tech goods having increased a lot, often at the expense of the US. Now the economy is facing a structural slowdown, and authorities may well calculating that high-tech sectors can pick up the slack. However, this strategy may prove risky, as it makes China highly vulnerable to external developments in a context where Chinese relations with western countries appear to be deteriorating — a fact which is likely to incentivise advanced economies to continue to build more diverse and less China-centric supply chains going forward.

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

[1] Fathom research has revealed that China actually runs a large trade deficit in IT, importing intermediate products such as semiconductors and exporting final IT products. Despite an impressive market share, it remains far from self-sufficient.