Sinolink Securities Co., Ltd. has released a research report addressing a key question for China's economy. The firm, in a previous report titled "AI and Geopolitics Profoundly Impact Macro Data," highlighted AI as the most certain driving force behind China's current export performance. In the first quarter, exports of AI-related goods surged by 36.6% year-on-year, accounting for 21.5% of China's total export value. Overall, AI capital expenditure in the United States remains a cornerstone for Chinese exports, and high short-term export growth is expected to persist.
Duration of the AI Export Boost
However, the price of semiconductors cannot rise indefinitely. As the comparison base increases, the growth rate of export prices for AI-related goods, particularly integrated circuits, is likely to decelerate in the fourth quarter. Concurrently, the export price inflation driven by crude oil has also passed its peak. Consequently, the supportive effect of price factors on export growth may gradually give way to volume factors in the coming period.
The report presents the following core analysis. China's exports grew 27% year-on-year in June, reaching a new high for the same period in recent years. Integrated circuits (memory, processors, etc.) and automatic data processing equipment (computers, storage components, etc.) constituted 45% of AI-related goods exports. Together, these two categories contributed 9.4 percentage points to the June export growth, serving as the primary driver of the sustained high expansion.
Price-Driven Growth
The strength of AI-related goods exports is heavily reliant on soaring prices. In June, the export value of integrated circuits surged 122.7% year-on-year, while the export volume saw a slight decline of 0.4%. This indicates the export price skyrocketed by 121.8%. Similarly, in May, the export volume of automatic data processing equipment fell 17% year-on-year, yet its export price rose 32.4%. Therefore, the sustainability of high price growth for these AI commodities is crucial for maintaining China's overall export momentum.
Currently, overseas demand orders remain robust, but the pace of price increases may be slowing. Spot prices for NAND flash and DRAM memory continue to climb, yet their month-on-month growth rates have moderated. With a rising base for comparison, year-on-year price growth is expected to peak and decline in the second half of the year.
According to TrendForce, the price of 32Gb NAND flash grew 346% year-on-year in June, but the month-on-month increase retreated from over 30% in March-April to around 20% in June-July. The price of 16G DDR5 DRAM surged 668% year-on-year, but its month-on-month growth fell below 10%. A recent TrendForce report forecasts that due to downward revisions in consumer application demand and the high price base, the sequential increase in memory contract prices may narrow in the third quarter.
Potential for a Slowdown
Integrated circuit export prices show a significant positive correlation with memory prices. With limited capacity expansion within the year and a deceleration in price gains, the export growth rate for AI-related goods like integrated circuits may subsequently decline. This effect could be particularly pronounced in the fourth quarter as the price base rises further, potentially weakening the supportive impact of year-on-year price comparisons on export growth.
Using integrated circuits and automatic data processing equipment as examples, a hypothetical 10-percentage-point decline in their year-on-year price growth could reduce their contribution to export growth by approximately 1.1 percentage points. However, the possibility remains that overseas AI capital expenditure growth could accelerate further, exacerbating supply-demand imbalances and continuing to support the export growth of AI goods.
Broader Industry Impact
Beyond high-price-growth items like integrated circuits, automatic data processing equipment, cables, and rare earth metals, other AI-related goods such as semiconductor devices, semiconductor manufacturing equipment, circuit switches, and transformers have experienced export price growth of less than 10%, yet their export volumes remain elevated. For instance, in May, the export price of semiconductor manufacturing equipment fell 14.3% year-on-year, while circuit switch prices rose 9.6%.
As memory manufacturers invest in expanding production, upstream equipment suppliers are also seeking price increases, with ASML recently planning to raise prices for its lithography machines. Therefore, it is important to monitor whether the semiconductor industry's strong performance will spread to broader areas like semiconductor equipment and components. If this price increase chain expands, the supportive role of other AI goods for exports could strengthen.
Key Considerations
The report includes a note that its forecasts for AI goods prices involve a degree of subjective judgment, and actual changes may exceed expectations. It also advises monitoring subsequent developments in geopolitical conflicts and their potential unforeseen impacts on exports. The influence of factors like AI trade on exports carries uncertainty, warranting close attention to changes within related industries.
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