Eddie Yue: China and the changing global trade landscape -
challenges and opportunities
Opening remarks by Mr Eddie Yue, Chief Executive of the Hong Kong Monetary
Authority, at the 14th Annual International Conference on the Chinese Economy,
organised by the Hong Kong Institute for Monetary and Financial Research, Hong
Kong, 14 October 2024.
* * *
Professor Wei [Shang-Jin, N.T. Wang Professor of Chinese Business and Economy,
Columbia University], Distinguished guests, Ladies and Gentlemen, Good Morning!
th
It is my pleasure to welcome you all to the 14 Annual International Conference on the
Chinese Economy, organised by the Hong Kong Institute for Monetary and Financial
Research. The theme of this year's conference is "China and the Changing Global
Trade Landscape: Challenges and Opportunities". This is a timely and important topic
- not just for China, but also with far-reaching and enduring implications for the global
economy.
There is ample evidence that globalisation has brought enormous benefits to the world,
through increasing cross-border flow of trade, investments, technology, ideas, and
people. For emerging market economies, integration into the global supply chain has
been a crucial contributor to their economic development. As global income rose in
tandem with global trade from the 1980s onwards, billions of people have been lifted
out of poverty.
Since the 2008 global financial crisis, however, the golden era of globalisation has
given way to a gradual slowdown in global trade in goods. There is a combination of
factors. First, it reflects doubts or even scepticism about the distributional effects of
globalisation. Secondly, rising geopolitical considerations in recent years have led to a
re-imposition of various trade and investment restrictions by some jurisdictions. And
thirdly, recent disruptions to supply chain, caused by the pandemic and regional military
conflicts, have prompted discussions about ways to mitigate such risks.
These developments have not yet translated into a wholesale reconfiguration of the
global trade landscape. But it appears that the slow-down in global goods trade is likely
to continue. A recent joint study by the HKMA and the Bank for International
Settlements (BIS) suggests that some supply chain realignment has already been
taking place during the pandemic.
Any escalation of geo-economic fragmentation would almost certainly result in a costly
transition, especially for Asia given the region's relatively open economies. For those
who believe in the value of free trade and globalization, the key question then is how
best to collectively minimise the risks of full blown economic fragmentation, and what
actions can be taken to sustain globalisation, even in the face of a changing global
trade landscape?
Since this is a conference about the Chinese economy, perhaps we can start with a
quick examination of how China is adapting to the change and turning the challenge
into opportunity. Despite the headwinds in the trade sector, China's world export share
has remained at around 15 per cent since 2018. This reflects two important trends.
First, China has continued its economic diversification and regional collaboration
through expanding its import and export network, particularly to broader emerging
markets. It has also stepped up outward direct investments to establish stronger
footholds in the global supply chain amidst friend-shoring or near-shoring.
Second, China's manufacturing industries have doubled down on their efforts to move
up the value chain, from low-end, labour-intensive component manufacturing to
highertech, full-spectrum product manufacturing, supported by China's own domestic market
and growing capability in more sophisticated technology goods.
Indeed, this is a process that pre-dates the recent rise in global trade protectionism, if
just for the classic reason of comparative advantage. What we have witnessed is that
even as some production may have been diverted away from China, these have been
largely concentrated in a few sectors - namely, textiles, electronics and autos - and in
the assembly segment rather than upstream. While Chinese exports might take up a
smaller share of some markets as a result, it is exporting more intermediate goods and
capturing a larger share of imports from other regional economies.
China's search for new trade opportunities through diversification and supply chain
upscaling has brought structural transformation to the Chinese economy and helped
maintain China's key position in global manufacturing. The process, together with other
changes in the global supply chain, will bring fundamental changes to global trade and
investment. It would be premature to predict what the new order will be. But one thing
is for sure, those who embrace the change and rise to the challenge will benefit greatly,
and it should not be a zero-sum game.
Now let me shift gear and touch on some emerging opportunities we are going to
discuss at this conference. I will focus on two panel themes: digital trade transformation
and innovative trade finance - two topics that are increasingly relevant as we transition
towards a digitalised global economy.
Digitalisation of trade offers a range of benefits. For firms, digital transformation of trade
and supply chain processes can produce efficiencies in terms of time and labour saved.
It also enhances the traceability and security of cross-border trade in goods and
services, by enabling real-time visibility into all stages of the supply chain from
production to delivery.
For economies, digital trade transformation offers substantial productivity gains through,
for example, rapid growth of e-commerce. It also offers better prospects of helping to
distribute the gains generated from trade more widely and equitably among the various
stakeholders.
Indeed, digitally delivered services already account for a little over half of total services
1
trade . They are increasingly facilitating trade flow across borders, in support of raising
the market share of developing economies, which has increased from about 20 percent
to 30 percent of global service trade between 2005 and 2023.
Meanwhile, digital technologies can be leveraged to enhance cross-border trade
settlement and financing, where there is plenty of scope for coordinated solutions to
existing pain points. For example, Project mBridge has been exploring the use of
wholesale central bank digital currencies of Hong Kong and a number of other
participating central banks as a way to speed up cross-border payments at reduced
cost, faster settlement, and with better transparency.
Equally exciting is the use of innovative technologies in trade finance - from blockchain,
AI to digital signatures - and greater cooperation around cross-border interoperability
that will help close the widening global trade finance gap, estimated by the Asian
Development Bank last year to have reached a record US$2.5 trillion.
Another area of opportunity and cooperation is around green technologies. The
consequences of climate change, in the form of higher frequency of extreme weather
events, have only become more visible these last few years, and Asia is particularly
exposed.
We need open and predictable trade to enable scale economies and direct low-carbon
technologies and services to where they are most needed. In this respect, major
regional trade networks can serve as key platforms that facilitate sustainable trade and
investment, support climate-resilient economic developments, and enhance the
ecosystem of green finance.
Let me close by noting that the global trading system as we know has brought mutual
benefits and shared prosperity to the world economy. Granted, there's always scope to
make the system work better and fairer. Let's focus not just on the challenges, but
more on the solutions and the opportunities.
There are excellent research papers to be presented at the conference, covering many
of the topics I outlined just now. So I wish you all a most engaging and productive
conference.
Thank you.
1
Globalisation today, Adam Jakubik, Elizabeth van Heuvelen, IMF, June 2024