Zhao Wei: Export Divergence – The Reversal of the Midstream-Downstream "Scissors Gap"
2026-06-06 11:37:24 Source: Chief Economist Forum Beijing
Zhao Wei, Tu Qiang, Geng Peixuan (Zhao Wei is Chief Economist of Shenwan Hongyuan Securities and a council member of the China Chief Economist Forum)
Abstract
Since 2025, the phenomenon of strong midstream exports and weak downstream exports has been extremely pronounced, with the growth rate gap between midstream and downstream exports reaching a historical maximum. Will the export structure performance reverse in the future? This article analyzes this issue for reference.
1. Hot Thinking: Will the Export Divergence Pattern Reverse?
1.1 Question 1: Is the Pattern of Export Structural Divergence Starting to Reverse?
The current "scissors gap" between midstream and downstream export growth rates has reached a historical maximum, a data level that often triggers a reversal of the divergence pattern. Both producer goods and consumer goods exports are ultimately driven by overseas final demand, so the growth rate difference between the two does not widen unilaterally but exhibits cyclical fluctuations. When the scissors gap reaches 15 percentage points, the divergence pattern of midstream and downstream exports tends to reverse. The last reversal occurred during the Russia-Ukraine conflict, when downstream began to outperform midstream. Currently, the midstream-downstream gap has again reached 15 percentage points.
In this context, April exports have already shown a reversal phenomenon of "midstream weakening, downstream improving." After removing the disturbance of the "Chinese New Year shift" on export year-on-year comparisons, export growth declined from 23.9% in March to 14.1%. Among them, consumer goods export growth improved significantly. Toys (+18.4 ppts to -9.6%), furniture (+13.1 ppts to -6.6%), clothing and footwear (+12.4 ppts to -3.1%), and home appliances (+7 ppts to 8.2%) were the sectors with the largest rebounds. In contrast, midstream exports that had previously performed strongly, such as machinery, precision instruments, chemicals, and transportation equipment, began to weaken.
The weakening of midstream exports is mainly concentrated in the EU and ASEAN, while the improvement in downstream exports covers both the US and non-US economies. Breaking down the country structure of midstream exports, producer goods exports to the EU and ASEAN have notably weakened, including machinery, equipment, and chemicals, which were previously strong areas. For the improvement in downstream exports, consumer goods exports to both the US and non-US economies have improved, including regions such as the EU, ASEAN, and Africa, indicating that the downstream improvement is not solely due to US tariff easing and a low base effect.
1.2 Question 2: Why Is the Divergence Pattern Reversing?
The "asymmetric impact" of Middle East events on the export structure.
High oil prices hit EU production, accordingly dragging down China's midstream exports; the security benefit to midstream exports is not significant. During the Russia-Ukraine conflict, the production of intermediate goods in the EU, which is highly sensitive to crude oil, weakened significantly, pulling down China's producer goods exports. At that time, exports of mineral metals, machinery, equipment, and chemicals to Europe all fell by about 20-40 percentage points. The market view that "the war triggers security concerns – countries cultivate their own supply chains – boosting China's equipment exports" was not evident. This also means that even if overall EU production remains resilient later, a decline in intermediate goods production will drag down China's exports. In March, the production growth rate of EU intermediate goods had already fallen to a low of -4.9%, which precisely led to the decline in China's producer goods exports to the EU.
Since March, ASEAN production has weakened, also dragging down China's producer goods exports to ASEAN. In the past two years, China's producer goods exports to ASEAN have been strong, not due to re-exports, but driven by demand release from ASEAN's accelerated industrialization. Currently, while the AI trend may still boost ASEAN production, high oil prices have already impacted ASEAN's industrial system. Since March, Vietnam's production index year-on-year growth has fallen by 6.0 percentage points to 8.5%, also dragging down China's producer goods exports.
Tariff situation easing and the "export substitution" of consumer goods are the main forces contributing to the recovery of downstream exports; the substitution effect is not significant for midstream exports. Overseas production weakening reduces imports of Chinese producer goods, dragging down midstream exports, while downstream exports benefit significantly. This phenomenon was evident in 2020 and 2022, reflected in the data as a high positive correlation between China's production advantage (China production growth – EU and ASEAN) and the "downstream-midstream export growth gap" mentioned above.
1.3 Question 3: How Will the Export Divergence Pattern Evolve in the Future?
The high prosperity of AI exports and energy transition exports is a relatively certain area for the future, but potential macro risks also need attention. Since May, South Korean exports, which are more sensitive to the AI industry trend, have continued to strengthen. Against the backdrop of the global AI revolution, China's AI exports are likely to maintain high growth in the future. The Middle East events will also benefit energy transition exports. However, the current AI narrative faces three potential macro risks: first, the growth rate of US data center plant investment peaked in 2024 and has been declining since 2025; second, compared with semiconductor sales, US information equipment has also shown a degree of "overinvestment". Compared with previous technology cycles, semiconductor sales are still below historical cycle peaks, but information equipment investment has exceeded historical cycle peaks; third, if overseas energy problems affect subsequent industrial electricity use, it may also impact AI industrial activity.
In addition to the share substitution logic, under the backdrop of a decoupling between US consumer demand and consumer goods imports, the future improvement in downstream exports can "coexist" with a weakening of US consumption. Affected by excessive destocking caused by tariffs, US consumer goods imports are currently 21.9 percentage points weaker than consumer demand. This implies that even if US consumption weakens in the future, the easing of tariff conditions may slow the pace of US destocking, correspondingly driving a "gap-filling" recovery in US consumer goods imports (returning toward consumer demand). This has been playing out since March, benefiting downstream exports.
Even if future Strait navigation drives down crude oil futures prices, actual supply shortages may keep spot oil prices high, which could continue to pressure China's midstream exports. Unlike the Russia-Ukraine conflict, the oil price surge caused by the Middle East events also faces a "supply cutoff" problem. This implies that even if the Strait of Hormuz reopens and market sentiment eases, driving down futures prices, actual supply shortages may keep spot prices high. The industrial production of the EU and ASEAN may continue to be impacted, affecting midstream exports.
Risk Warning
1) Evolution of geopolitical events exceeding expectations. If the Middle East war evolves beyond expectations, or other regions experience geopolitical events, it may exacerbate the overseas economic downturn and global supply chain uncertainty, affecting our judgment on exports.
2) Economic pressure in developed economies exceeding expectations. High inflation may trigger monetary policy tightening by overseas economies. If the tightening exceeds expectations and triggers a faster-than-expected comprehensive recession in developed economies, it will affect export forecasts.
3) Adjustments in overseas central bank monetary policies. If global inflation rebound pressures intensify, overseas central banks may adjust monetary policies, thereby affecting the future RMB exchange rate.
(Note: All charts and their source notes are omitted here as they are non-text content. The original article includes multiple charts with detailed data and sources; for a pure text version, these are not reproduced.)
