BOFIT Viikkokatsaus / BOFIT Weekly Review 2024/10

Foreign trade figures from Finnish Customs show that the value of Finnish goods exports to China contracted last year by 12 % to 3.557 billion euros. China’s tepid domestic demand largely explains the weak export performance. Moreover, the downturn in the global economy caused Finnish exports overall to decline last year by 7 % y-o-y. China’s share of Finland’s total exports was 4.7 % last year (4.9 % in 2022). China is Finland’s fifth most important export destination after Germany, Sweden, the United States and the Netherlands. The top categories in Finnish exports to China are wood pulp and paper products (38 % of Finnish exports to China), as well as machinery and electronics (37 % of exports).

The value of goods imports from China contracted by 18 % y-o-y, slightly more than Finland’s imports overall (down by 17 %). The value of goods imports from China last year was 6.917 billion euros, and Finland’s trade deficit with China shrank to 3.360 billion euros. The sluggish export figures are mainly a reflection of Finland’s weak economy and a flattening of the post-pandemic boom in goods demand. With a 9.0 % share (9.2 % in 2022), China is Finland’s third-largest provider of imports after Sweden and Germany. Machinery, equipment and electronics account for the bulk of Chinese imports (56 % of total imports).

According to preliminary services trade figures released by Statistics Finland, the value of Finland’s services exports to China fell last year by 17 % y-o-y to 1.041 billion euros. The value of services imports from China contracted by 15 % to 1.293 billion euros. Finland’s services exports to China consist mainly of intellectual property fees and royalties, telecom services, IT services, transportation services, as well as various business support services. Finland’s services from Chinese suppliers typically involve business support services or transport services.

Finland’s services trade balance with China turned into a deficit in 2021 due to the collapse of Chinese tourism caused by the Covid-19 pandemic. Chinese tourism only began to revive gradually after China ended its zero-covid policies at the end of 2022. Preliminary figures released by Finland’s tourist board, Visit Finland, show that the number of Chinese tourists visiting in the fourth quarter of 2023 was only 43 % of the number in 4Q19. Chinese tourists accounted for only about 3 % of overnight stays of foreign visitors to Finland at the end of last year, well down from pre-pandemic levels above 6 %.

The latest export barometer (in Finnish) published by the Confederation of Finnish Industries (EK) at the end of February shows that most Finnish exporters have little expectation of a rapid recovery in the months ahead. The survey conducted in January found that 42 % of Finnish firms involved in international commerce expect the lull in export activity to continue for at least the next six months, and that one in four firms expected imports to contract further. However, 28 % of firms were optimistic, saying that they saw their export prospects brightening in the months ahead. Responding firms said that their biggest headaches were higher costs, greater geopolitical uncertainty, labour shortages, as well as transport and logistic difficulties brought on by supply-chain disruptions. Finnish exporters did not feel that they had become over-dependent on China; only 4 % saw dependence on China as an exceptionally high risk and 11 % as a significant risk.

2023 was a challenging year for Finland and China’s bilateral trade
Sources: Finnish Customs and Statistics Finland.

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