Journal of Chinese Economic and Business Studies

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The impact of COVID-19 on China’s trade and

outward FDI and related countermeasures

Wenjing Duan, Shujin Zhu & Mingyong Lai

To cite this article: Wenjing Duan, Shujin Zhu & Mingyong Lai (2020) The impact of COVID-19 on
China’s trade and outward FDI and related countermeasures, Journal of Chinese Economic and
Business Studies, 18:4, 355-364, DOI: 10.1080/14765284.2020.1855395

To link to this article: https://doi.org/10.1080/14765284.2020.1855395

Published online: 10 Dec 2020.

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JOURNAL OF CHINESE ECONOMIC AND BUSINESS STUDIES
2020, VOL. 18, NO. 4, 355–364
https://doi.org/10.1080/14765284.2020.1855395

ARTICLE

The impact of COVID-19 on China’s trade and outward FDI

and related countermeasures
Wenjing Duan , Shujin Zhu and Mingyong Lai
School of Economics and Trade, Hunan University, Changsha, China

ABSTRACT ARTICLE HISTORY

This paper analyzes the development trend and characteristics of Received 19 November 2020
China’s foreign trade and outward FDI amid the epidemic from the Accepted 21 November 2020
overall trend of change, the structure of domestic regions, the KEYWORDS
structure of overseas markets, the structure of import and export COVID-19; trade; OFDI
products, the industrial distribution of overseas investment and the
situation between countries along the Belt and Road. Further, we
proposed some countermeasures to promote China’s trade and
OFDI, such as establishing an early-warning system for overseas
risks, adhering to innovation drive, fostering a new, dual-cycle
development architecture with domestic and international devel­
opment reinforcing each other, promoting the construction of
cross-border e-commerce facilities and technologies and so on.

The sudden outbreak of Covid-19 in 2020 is spreading around the world, triggering
a global public health crisis with a huge impact on social order and economic activity.
In the first half of the year, to curb the spread of the epidemic, most economies adopted
measures such as quarantine, lockdown, and social distancing, and their industrial devel­
opment and economic growth suffered a shock suspension, which has spread to trading
partners and even to the rest of the world through trade and industrial chains. The COVID-
19 pandemic has hit the supply and demand sides hard, disrupting global supply chains,
limiting people’s consumption, and shrinking global production, trade, and cross-border
investment. As the first country affected by this epidemic, and one of the world’s major
import and export countries and sources of foreign investment, under the backdrop of
increased uncertainty, complexity, and difficulty in the current global economic situation,
China’s foreign trade, and outward foreign direct investment (OFDI) will undoubtedly be
significantly affected.

1. The background of China’s foreign trade and outward FDI

Although affected by the sluggish growth of the world economy, the aggravation of inter­
national trade friction, and the adjustment of domestic economic structure, China’s foreign
trade shows an overall growth trend (Figure 1). In 2019, China’s foreign trade grew against the
downward trend of global trade in goods. Total foreign trade volume in goods was 31.56

CONTACT Shujin Zhu shujin_zhu@126.com School of Economics and Trade, Hunan University, Changsha
410006, China
© 2020 Informa UK Limited, trading as Taylor & Francis Group
356 S. ZHU ET AL.

Figure 1. Scale and growth rate of China’s import and export trade, 2000–2019.
Source: The General Administration of Customs, P. R. China

trillion yuan, an increase of 3.5% compared with the previous year (Ministry of Commerce of
China 2020). Exports reached 17.24 trillion yuan, with a year-on-year growth of 5%; imports
amounted to 14.33 trillion yuan, with an increase of 1.7%. According to the statistics of WTO
(2020), China’s exports of goods in 2019 accounted for 13.2% of the globe, up 0.4 percentage
points from 2018, while imports of goods accounted for 10.8% of the global total, which was
the same as the previous year. China’s export share in the international market gradually
increased, and the import share remained at the highest level in history. The contribution of
China’s OFDI has become increasingly prominent. China has been the top three source of
capital, contributing to above 10% of global FDI outflows (Figure 2). Despite the weakness of
global OFDI, China’s OFDI flows in 2019 remained at about 10%, at USD 136.91 billion, 51
times the value in 2002 (Ministry of Commerce of China 2019).

Figure 2. China’s percentage share in world FDI outflows, 2010–2019, (%).

Source: 2019 Statistical Bulletin of China’s Outward Foreign Direct Investment
 JOURNAL OF CHINESE ECONOMIC AND BUSINESS STUDIES 357

2. The development trend and characteristics of China’s foreign trade and

OFDI amid the COVID-19 pandemic
Facing the sudden outbreak of Covid-19, Chinese government has taken a series of
effective measures, such as the Wuhan lockdown, the suspension of production, and
travel restrictions, which effectively controlled the spread of the epidemic in the short
term and achieved a strategic victory. In the early stage of fighting against this epidemic,
because of the difficulty of returning to work, the interruption of overseas supply chains of
intermediate products, the obstruction of personnel and material circulation channels,
the worsening of overseas epidemic situation, and the increasing trade friction between
China and the United States, China’s foreign trade and OFDI were seriously affected. China
has issued a series of measures to stabilize trade and foreign investment, to guide all
parties to concentrate on ‘six stability’ and ‘six guarantees’,1 which have promoted the
resumption of work and resumption of production of Chinese foreign trade enterprises in
an orderly manner. Up to now, in general, although the outbreak has a great impact on
China’s foreign trade and OFDI, the impact is short term and limited, and will not change
the long-term positive situation of China’s foreign trade and OFDI. Under the impact of
the COVID-19 pandemic, China’s foreign trade and OFDI show the following main
characteristics.

(1) Overall, the decline of China’s foreign trade and OFDI has gradually narrowed
and is now steadily recovering. According to China Customs (Figure 3), China’s total
trade value in January–February 2020 declined by 9.5% comparing to the same period
in 2019, with a drop of 15.8% in exports and a decrease of 2.4% in imports. The
enterprises gradually resumed production in March, which had led to the recovery of
total trade volume in October, with an increase of 2.4% in exports and a slight decline
of 0.5% in imports. In terms of OFDI, the United Nations Conference on Trade and
Development (UNCTAD) pointed out that in the first quarter of 2020, the number of
cross-border mergers and acquisitions (M&As) in the world decreased by 70%, and
they estimated the global FDI would fall by 40%, far more than the figures of 21% and
17% in 2008 and 2009, respectively (UNCTAD 2020). As shown in Figure 4, China’s FDI

Figure 3. China’s monthly import and export and accumulated growth rates, 2020.
Source: The General Administration of Customs, P. R. China
358 S. ZHU ET AL.

Figure 4. China’s monthly FDI outflows and accumulated growth rate, 2020.
Source: Ministry of Commerce, P. R. China

outflows, in all sectors and in non-financial sectors, show a clear V-shaped rebound in
the third quarter of 2020 after consecutive decline in accumulated growth rate during
the first 7 months.
(2) Trade indicators of main provinces rebounded after a sharp decline, with central
and western regions grow quicker in trade values and the eastern and western
regions rebound faster in OFDI. As shown in Figure 5, in the first quarter, the foreign
trade of the major trading provinces Guangdong, Jiangsu, Shanghai, Zhejiang dropped
sharply, by 11.8%, 9.5%, 4.0% and 5.4% year-on-year, respectively, while that of Hubei
Province, the most seriously affected by the epidemic, decreased by 20.9%. However,
China’s domestic complete industrial chain has made up for the global supply gap
caused by this epidemic, thus, the foreign trade of China’s major trading provinces
showed a comprehensive rebound trend in the third quarter. Although the accumu­
lated growth rate of trade in all these provinces show a trend of recovery, Zhejiang
Province show the highest growth rate, followed by Hubei and Shanghai. Wuhan city,
the early epicenter, experienced a strong recovery with trade up by 11.4% by the end
of the third quarter. By region (Figure 6),2 the epidemic has had the greatest negative

Figure 5. Accumulated growth rate of trade of China’s major trading provinces, 2020, (%).
Source: constructed by the authors using data from China Customs
 JOURNAL OF CHINESE ECONOMIC AND BUSINESS STUDIES 359

Figure 6. Accumulated growth rate of trade of China’s by regions, 2020, (%).

Source: The author utilizes data from China Customs.

impact on eastern region’s foreign trade, followed by the western region. From
the second quarter, the central and western regions became an important force in
promoting China’s foreign trade growth. In the first three quarters, total foreign trade
in the central and western regions grew by 6.56% and 8.14%, respectively, much faster
than the country’s average. Considering the OFDI, statistics from various sources of
Ministry of Commerce showed that in the first three quarters, China’s non-financial
OFDI reached USD 57.08 billion, up 13.5%, accounting for 72.4% of the total in the
same period. Among them, about 83% were contributed by the eastern regions.
Guangdong’s actual non-financial OFDI was USD 12.428 billion, up by 85.08%; while
those of Zhejiang and Jiangsu Provinces were USD 8.032 billion and USD 3,596 billion,
a decline of 14.83% and 47.47%, respectively.3 The amount of OFDI from the western
regions is relatively small (at USD 4.45 billion) but grew rapidly at 17.1% year-on-year
rate.
(3) The structure of China’s foreign trade market has changed, and ASEAN has
become the largest trading partner; the amount of overseas M&As has decreased
significantly, but Asia is still the main destination of overseas M&As of Chinese
enterprises. As shown in Figure 7, China’s imports and exports with the top four
trading partners accounted for 47.75% of China’s total foreign trade, of which the trade
values with ASEAN and EU increased by 7.7% and 2.9%, respectively. Under the impact
of trade frictions between China and the United States, China’s trade with the US still
reached 2.82 trillion yuan, up 2%. In addition, in the first three quarters, except for
Hong Kong (China), China’s imports and exports to its major trading partners (ASEAN,
the United States, South Korea, Taiwan (China)) all increased, while to some other
trading partners (The EU, Japan, Brazil, Russia) the exports or imports still declined, but
the decline was significantly narrower than in previous months. In terms of OFDI,
China’s overseas M&As totaled USD 24.4 billion, down 50.6% year-on-year, and the
announced number of deals was 371, down 21.1% (Chow 2020). As in 2019, Asia is still
the main destination for overseas M&As of Chinese enterprises (Figure 8). From January
360 S. ZHU ET AL.

Figure 7. China’s trade value with major trading partners (Trillion yuan) and proportion in Jan.-Sep. 2020.
Source: The General Administration of Customs, P. R. China

Figure 8. China’s overseas M&As by continent in Jan.-Sep. 2020 (US$ Billion).

Source: Overview of China outbound investment in the first three quarters of 2020

to September 2020, Chinese companies made 155 overseas M&As in Asia, amounting
to USD 10.29 billion, down 33.5%, accounting for 42.19% of China’s total overseas
M&As. In North America, the number of overseas M&As was 84, with a value of USD
8.40 billion, a year-on-year increase of 6.7%; this was the only continent with growth
and accounted for 34.44% of the total. The number of M&As in the EU was 93, with the
value of USD 4.21 billion, down 74.8% and accounting for 17.26% (Chow 2020).
(4) China’s foreign trade and OFDI with countries along the Belt and Road are
growing steadily. In recent years, China’s trade and investment with countries
along the Belt and Road have gained momentum and the potential for cooperation
has been unleashed. According to the Customs data, in the first three quarters of
 JOURNAL OF CHINESE ECONOMIC AND BUSINESS STUDIES 361

2020, the total trade value to countries along the Belt and Road was 6.75 trillion
yuan, up 1.5% year on year, which is 0.8 percentage points higher than the overall
growth rate of trade. By country, foreign trade with Vietnam, Turkey, Poland and
Thailand grew the fastest, up by 18.5%, 17.1%, 13%, and 10.9%, respectively.
Quarterly, the trade values in the first quarter to the Belt and Road reached 2.07
trillion yuan, accounting for 31.4% of total foreign trade, up 3.2%, with exports
down 1.8% and imports up 9.6%. With the worsening of epidemics overseas, in the
first half of the year, the accumulated foreign trade volume was 4.2 trillion yuan,
down 0.9% year-on-year, with exports and imports down 1.01% and 0.86%, respec­
tively. In terms of OFDI (Figure 9), the accumulated growth rate of non-financial
OFDI declined in the first 3 months and then regained a strong growth afterward.
By September, Chinese companies has invested USD 13.02 billion in 57 countries
along the Belt and Road, up 29.7%, accounting for 16.5% of the total OFDI. The
main destinations of Chinese capital include Singapore, Indonesia, Laos, Vietnam,
Cambodia, Malaysia, Thailand, Kazakhstan, the United Arab Emirates and Myanmar.
(5) The exports of epidemic-prevention materials, notebook computers, and home
appliances grew rapidly, exports of electric vehicles increased significantly,
exports of electromechanical products rebounded, and import volume of major
bulk commodities and key agricultural products increased; FDI outflows mainly
went to leasing and business services, manufacturing, wholesale, and retail trade
industries. Affected by the epidemic,4 China’s exports of pharmaceutical materials and
pharmaceuticals rose by 21.8% year-on-year while exports of medical instruments and
devices increased by 48.2% in the first three quarters. The‘stay-at-home’ economy and
‘online’ new economy amid the COVID-19 pandemic boosted the export growth of
China’s home appliances and computers. The exports of tablets, laptops and home
appliances increased by 19.9%, 17.6%, and 17.3%, respectively. In terms of new energy
vehicles, China has demonstrated strong international competitiveness with electric
vehicles growing by 181.4%. China’s exports of electromechanical products, which are
key export products, reached 7.46 trillion yuan, up 3.2% year-on-year5 and up 5.5 per­
centage points from the first half of the year. In addition, total exports of seven
categories of labor-intensive products such as textiles and clothing, amounted to 2.59

Figure 9. China’s monthly non-financial OFDI along ‘belt and road’, 2020.
Source: The author utilizes data from the Ministry of Commerce, P. R. China.
362 S. ZHU ET AL.

trillion yuan, up 5.4%. The exports of high-tech products were 3.75 trillion yuan, up
5.1%. Moreover, China’s imports of major bulk commodities and key agricultural
products increased, with imports of iron ore, crude oil and natural gas increasing by
10.8%, 12.7%, and 3.7%, respectively. In terms of OFDI, in 2019, China’s OFDI covered 18
sectors of the national economy, and more than 70% of investment went to leasing and
business services, manufacturing, finance, wholesale, and retailing industries. In the first
three quarters of 2020, China’s OFDI was still dominated by these industries, among
which the non-financial investment in leasing and business services was USD 30.93
billion, up 18.6% and there was a flow of USD 12.01 billion to the wholesale and retail
industry, with an increase of 41.1%.

3. Policy suggestions on promoting China’s foreign trade and OFDI under

the impact of the epidemic
(1) Reasonably evaluate the risks of investment and trade in overseas markets,
establish an early-warning system, and enhance the anti-risk ability of enter­
prises. The continuously spreading and worsening of the global epidemic has
increased the instability and risk of overseas investment markets and global trade
environment. In addition, some countries maliciously canceled their agreement
and order with China’s investment and foreign trade enterprise. Therefore, it is
necessary to fully study and evaluate the overseas investment market and trade
environment, establish an early warning mechanism, and plan countermeasures as
soon as possible, and then improve the response ability of enterprises.
(2) Adhere to innovation drive, make up for technical weaknesses, promote the
transformation and upgrading of manufacturing industry, and enhance the sta­
tus of the global value chain. The enterprises should be actively guided to integrate
into the global innovation network, and then enhances the collaborative innovation
ability with the help of existing bilateral and multilateral cooperation mechanisms. The
government should encourage high-tech enterprises to increase the research and
development of core intermediate components, such as chips and semiconductors,
to break through the technology bottleneck. Meanwhile, The government should also
promote the combination of big data, artificial intelligence, Internet of Things and other
new generation information technology with trade, and promote the industrial appli­
cation of the new generation of information technology, and finally we can promote
the transformation and upgrading of manufacturing industry, and promote the man­
ufacturing industry to climb to the middle and high end of the global value chain.
(3) Further accelerate the formation of all-round opening-up, and rely on the domes­
tic market to foster a new, dual-cycle development architecture with domestic
and international development reinforcing each other. Under the framework of the
Belt and Road Initiative and the Regional Comprehensive Economic Partnership (RCEP)
Agreement, we should establish a connection between the comparative advantages of
countries along the belt and road and the factor endowments of various industries and
regions in China, and based on urban clusters we should build the regional value chains.
Meanwhile, based on the Free Trade Area’s construction, China should gradually form
an all-dimensional opening-up pattern which involves interactive development among
China’s multiple regions. It is necessary to further expand import trade and use imports
 JOURNAL OF CHINESE ECONOMIC AND BUSINESS STUDIES 363

to drive high-quality exports while meeting domestic demand and enhance trade
exchanges between countries and then build a new, dual-cycle development architec­
ture with domestic and international development reinforcing each other.
(4) Promote the construction of cross-border e-commerce facilities and technol­
ogies and accelerate the expansion of global diversified logistics systems. The
promotion of new infrastructure around Big Data, Cloud Computing, 5 G, Internet
of Things, and Industrial Internet supports China to seize the commanding heights
of global cross-border e-commerce. Moreover, a comprehensive and diversified
logistics system is helpful to the rapid development of cross-border e-commerce.
With the formation of China’s all-round opening-up pattern, we should strengthen
the establishment of cross-border and interregional logistics systems, and build
a faster, more efficient, and complete logistics supply chain system, so as to drive
the development of cross-border e-commerce in various countries and promote
the sound development of global trade and investment.

4. Conclusion
The COVID-19 pandemic in 2020 is the biggest crisis people faced after World War II, and its
impact on the global trade and economy far exceeds that of the 2008 financial crisis. In this
paper, we explain the channels of influence of the epidemic on China’s foreign trade and
OFDI, analyze in detail the development trend and characteristics of China’s foreign trade and
OFDI amid the COVID-19 pandemic. We find that overall, the negative impacts of COVID-19
on China’s foreign trade and OFDI is short and limited, and China’s trade and OFDI are steadily
recovering. The epidemic has also brought some opportunities. It shocks the demand of
overseas markets and promotes the adjustment and upgrading of the export structure in
China and drives the development of cross-border e-commerce in China as well. Finally, we
proposed some countermeasures to promote China’s trade and OFDI.

Notes on contributors
Wenjing Duan, Ph.D. student, Email: wenjing4563@163.com
Shujin Zhu, Professor of Economics, Email: shujin_zhu@126.com
Mingyong Lai, Professor of Economics, Email: laimingyong@126.com

Notes
1. The ‘six stability’ refers to ‘stabilize employment, financial operations, foreign trade, foreign
investment, domestic investment and expectations’. The ‘six guarantees’ means to ‘ensure
employment, basic living needs, operations of market entitles, food and energy security,
stable industrial and supply chains, and the normal functioning of primary-level
governments’.
2. The provinces in each area are the following: (1) Eastern Region: Beijing, Tianjin, Hebei,
Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Hainan;(2) Central
Region: Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan; and (3) Western
Region: Chongqing, Gansu, Guangxi, Guizhou, Inner Mongolia, Ningxia, Qinghai, Shaanxi,
Sichuan, Xinjiang, Tibet, Yunnan.
3. Data from the Department of Commerce of each province.
364 S. ZHU ET AL.

4. The trade data in this part is from China Customs, and the data of OFDI is from the Ministry of
Commerce, P. R. China.
5. In the first half of the year, the export value of electromechanical products declined by 2.3%.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This work was supported by the Major Program of National Social Science Fund of China [18VSJ055].

ORCID
Wenjing Duan http://orcid.org/0000-0003-2690-7762

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