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China’s Exports Rise, Cheering Beijing—and Foreshadowing a Backlash
SHANGHAI—China’s exports started the year on strong footing, offering a possible pathway for Beijing to hit its aggressive growth target this year while raising the likelihood of increased trade tensions.
China’s outbound shipments rose 7.1% in the January-February period when compared with a year earlier, accelerating from a 2.3% increase in December, according to data released Thursday by Beijing’s General Administration of Customs.
While the increase was comfortably higher than the 3% increase expected by economists surveyed earlier this week by The Wall Street Journal, the market was prepared for the strong reading after senior Chinese officials disclosed the data one day ahead of the scheduled release.
On Wednesday, China’s commerce minister and the head of the country’s state planning agency told reporters in a briefing on the sidelines of China’s annual legislative meetings that the country’s exports grew by about 10% in the first two months of the year from a year earlier.
They didn’t specify at the time whether they were speaking in yuan or dollar terms, but Thursday’s official data release showed outbound shipments rising 10.3% in yuan terms during the January-February period when compared with a year earlier.
Beijing combines economic data for the first two months of the year to iron out distortions caused by shifts in the timing of the Lunar New Year holiday, when many business operations are suspended.
The early disclosure marked the second time this year that officials have front-run the official release of key economic indicators. At Davos in January, Chinese Premier Li Qiang told global business elites one day ahead of schedule that the Chinese economy grew 5.2% in 2023.
The ahead-of-schedule data disclosures come amid an effort by senior Chinese officials to allay concerns about the state of the world’s second-largest economy, which faces challenges including a protracted property slump, persistent deflationary pressures and weak consumer demand, in addition to continued geopolitical tensions with the West.
At their press briefing on Wednesday, Chinese officials paired their early release of the official data with a warning that the export data would likely soften in March. They also hinted at monetary-easing moves to keep Beijing on track to realizing the growth target that officials unveiled on Tuesday.
While its target of “about 5%” growth was unchanged from a year earlier, that goal was much easier to meet last year, when economic growth was being measured against a 2022 in which the economy was being ravaged by harsh lockdowns aimed at curbing the fast-spreading Omicron variant of the coronavirus.
For this year, most outside economists have penciled in growth expectations of less than 5%, maintaining those forecasts even after the government released its target and announced new policies to meet that goal.
In its annual legislative meeting, Beijing said it would issue ultralong special treasury bonds this year to drive tepid investment, but the government stopped short of concrete measures to boost consumer spending or help lift its beleaguered property sector out of the doldrums.
“We think the 5% growth target is relatively ambitious while the support provided by policies introduced in the government report was relatively mild,” Wang Tao, chief China economist at UBS Investment Bank, said in a briefing Thursday.
The faster-than-expected growth of China’s export sector in January and February at least gives Beijing some stability in the shorter term, coming on the back of positive year-over-year readings in November and December. Before that, exports had fallen for six straight months.
Exports were a critical growth driver during the three years in which China’s economy was battered by the pandemic. Beijing’s policies gave priority to keeping factories and businesses open, allowing the country long known as the world’s factory floor to continue churning out goods as manufacturers around the world went offline.
As the impact of Covid-19 finally faded, Chinese exports ceased to serve as a contributor to overall economic growth and instead became a drag. China’s export sector last year posted its first annual decline since 2016.
Even if exports can maintain their strong start this year, there are limits to how much outbound shipments alone can carry an economy as large as China’s.
“The Chinese economy is big. It’s hard to rely on external demand to totally offset the weakness in domestic demand,” said Ding Shuang, a China economist for Standard Chartered Bank.
Thursday’s trade data release showed flickers of hope on that front. China’s imports, treated by some economists as a proxy for domestic demand, rose 3.5% in year-over-year terms in the first two months of the year, better than December’s 0.2% rise and the 2.2% growth anticipated by surveyed economists.
That brought China’s trade surplus in the first two months of the year to $125.16 billion, the customs bureau said.
Even as Chinese officials sought to talk up economic prospects for the year ahead, they also warned of worsening global trade conditions. Chinese Commerce Minister Wang Wentao told reporters on Wednesday that foreign trade this year still faces “extremely severe” conditions, with protectionism on the rise. Both the European Union and the U.S. have opened probes into Chinese-made electric vehicles, one of the country’s most promising export industries.
Taken as a whole, China’s exports to the U.S. rebounded to 5% growth in the January-February period from a 6.9% decline in December, while the trend line of falling year-over-year exports to Europe narrowed, according to Wall Street Journal calculations based on Thursday’s data release.
Standard Chartered’s Ding said China’s improving export profile in relation to the U.S. and Europe, coupled with the competitive prices of Chinese goods, could exacerbate trade frictions.
In the U.S. Senate, calls have risen for higher tariffs and other restrictions to be imposed to keep Chinese-made EVs from making inroads in the world’s largest economy. This month, Republican senators have introduced several bills that would, among other things, impose new tariffs on Chinese-made autos and stop what Sen. Marco Rubio described as an attempt by Beijing to “flood the U.S. market with artificially cheap vehicles.”
Frackers Are Now Drilling for Clean Power
Oil-and-gas companies are accelerating investments in geothermal energy, betting the technologies that fueled the shale revolution can turn the budding industry into a large producer of clean power.
The new geothermal industry is the result of a surprising confluence of interests among the oil-and-gas, technology and green power industries. The heat that the drillers find underground can be used to generate a steady, round-the-clock supply of carbon-free electricity, which is coveted by tech companies for their power-hungry data centers.
Finding pockets of underground heat is relatively easy in places with lots of geothermal activity, including parts of the U.S., Indonesia and New Zealand. When the heat is deeper in the earth, it is more difficult and more expensive to find. Those constraints have kept the sector’s share of U.S. electricity generation at less than 1%.
Technological advances in well drilling, modeling and sensor technology are expected to change that: The Energy Department estimates geothermal energy could power the equivalent of more than 65 million U.S. homes by 2050.
New funding for a startup called Fervo Energy follows drilling results showing declining costs in the sector.
The industry began changing about five years ago, when companies like Google launched efforts to run their operations on renewable power 24/7 and found that wind and solar, which can’t supply uninterrupted power, couldn’t get there on their own.
“It created this huge market momentum around looking at something new,” said Tim Latimer, Fervo’s chief executive. “That’s what allowed us to put geothermal on the map for the first time in a long time.”
Geothermal energy is more typically used for heating and cooling. Instead of heat, this process relies on the steady underground temperature a short distance below the surface. That reduces the amount of heating and cooling needed on hot and cold days.
Fervo, by using horizontal drilling and pumping water underground through fractures in rock in a process similar to fracking, found that many more parts of the world could economically generate electricity from geothermal energy.
After the water is heated up deep underground, it returns to the surface, where it transfers the heat to another liquid with a lower boiling point. That generates steam, which spins turbines for generating electricity. Geothermal power is currently much pricier than wind, solar and natural gas power, putting pressure on the industry to reduce costs.
Fervo is raising $244 million from investors including Devon, billionaire former Enron trader John Arnold, Liberty Mutual Investments and commodity trader Mercuria. Devon is putting in $100 million, one of the biggest such investments by an oil-and-gas company in a clean-energy startup.
BP was among the investors that recently put $182 million into Canadian startup Eavor Technologies, which counts Chevron among its early backers and tries to simplify geothermal by essentially burying a large radiator deep underground and circulating fluid through it. Chesapeake Energy recently made an early stage bet on a startup called Sage Geosystems that is led by a former Shell executive.
Old oil-and-gas wells could be retrofitted to produce geothermal power, while existing wells can extract geothermal energy alongside fossil fuels, potentially helping accelerate the industry’s growth.
Oil companies understand subsurface geology, have experience building infrastructure projects and have cash available to deploy. That is why Chevron is joining with other companies and pursuing geothermal pilot projects in Japan, Indonesia and the U.S., said Barbara Harrison, vice president of offsets and emerging technologies at Chevron New Energies.
“We are choosing to pursue direct investment in novel geothermal technologies in a way that we’ve not directly invested in wind or solar,” she said.
About 60% of Fervo’s roughly 80 employees have an oil-and-gas background, said Latimer, a Texas native and former drilling engineer for BHP Billiton.
Fervo said drilling costs for its first four horizontal wells for a project in Utah fell to $4.8 million per well from $9.4 million a couple of years ago at its first commercial project in Nevada. The company aims to soon reach electricity costs around $100 per megawatt hour.
Fervo recently began sending electricity from the Nevada operation to the local grid to power Google data centers and other local projects. In Utah, it hopes to produce enough electricity to power hundreds of thousands of homes.
This week’s fun finds
An online exhibit that explores theories on why the zebra has stripes.
Black and White
Are zebra stripes just a random creation of nature? If not: What is their function? Which evolutionary advantage do they confer?
Tax time
