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Government measures cast little light on export outlook
By Alaistair Chan |
September 20, 2012, Thursday
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CHINA'S external trade situation is deteriorating across a number of fronts. Exports are contributing to what President Hu Jintao has called the "downward pressure" facing the economy. It is not hard to see why. The export situation has taken a turn for the worse after treading water for several months.
Not only are exports to core eurozone destinations falling at double digit rates - exports to Germany (down 16 percent year-on-year), France (down 12.5 percent), and Italy (down 26 percent) all fell in August - but exports to Japan and the US are also weakening.
This export slowdown has coincided with a slowdown in processing trade; that is, the assembly of imported electronics for re-export. Exports of high-tech products grew just 1.7 percent year-on-year in August and the trend is down.
And unfortunately, as good as the new iPhone 5 seems to be, it is unlikely that it or any other competing smartphone will revive the fortunes of the tech assembly sector. Lacklustre high tech exports came even as mobile phone exports jumped 62 percent year-on-year in August, up from two percent in July.
One positive is that imports of components are rising: high-tech imports rose 9.4 percent in August, which could mean that the tech production cycle is gearing up for a good Christmas season, though in the very near term it is likely to be more of the same, judging by reports of falling new export orders in surveys of purchasing managers.
Despite the export weakness, the trade surplus rose to US$26.7 billion because imports fell 2.7 percent, the first annual decline since October 2009 (ignoring a Lunar new year-driven 14 percent drop in January).
Government efforts
The government is now rolling out a range of measures to help the export sector. These include the quicker payment of export tax rebates, easier credit for exporters, and expanding an export loan insurance scheme for small enterprises.
These measures were designed to avoid explicitly helping the export sector, which may have caused international tensions. However, while they will help ease cash flow problems among small firms, they are not likely to make much difference to the overall situation, given the fundamental problem of weak external demand.
The implicit bet that the government is making is that this is just a temporary slowdown in exports and that its policies will help as a stop-gap measure. But with the breadth and depth of problems facing Europe and the global economy, it remains to be seen whether export demand will rebound soon. If not, the government's policies may have the effect of delaying the transition to a domestically-oriented economy by keeping productive capacity tied to the export sector.
Not only are exports to core eurozone destinations falling at double digit rates - exports to Germany (down 16 percent year-on-year), France (down 12.5 percent), and Italy (down 26 percent) all fell in August - but exports to Japan and the US are also weakening.
This export slowdown has coincided with a slowdown in processing trade; that is, the assembly of imported electronics for re-export. Exports of high-tech products grew just 1.7 percent year-on-year in August and the trend is down.
And unfortunately, as good as the new iPhone 5 seems to be, it is unlikely that it or any other competing smartphone will revive the fortunes of the tech assembly sector. Lacklustre high tech exports came even as mobile phone exports jumped 62 percent year-on-year in August, up from two percent in July.
One positive is that imports of components are rising: high-tech imports rose 9.4 percent in August, which could mean that the tech production cycle is gearing up for a good Christmas season, though in the very near term it is likely to be more of the same, judging by reports of falling new export orders in surveys of purchasing managers.
Despite the export weakness, the trade surplus rose to US$26.7 billion because imports fell 2.7 percent, the first annual decline since October 2009 (ignoring a Lunar new year-driven 14 percent drop in January).
Government efforts
The government is now rolling out a range of measures to help the export sector. These include the quicker payment of export tax rebates, easier credit for exporters, and expanding an export loan insurance scheme for small enterprises.
These measures were designed to avoid explicitly helping the export sector, which may have caused international tensions. However, while they will help ease cash flow problems among small firms, they are not likely to make much difference to the overall situation, given the fundamental problem of weak external demand.
The implicit bet that the government is making is that this is just a temporary slowdown in exports and that its policies will help as a stop-gap measure. But with the breadth and depth of problems facing Europe and the global economy, it remains to be seen whether export demand will rebound soon. If not, the government's policies may have the effect of delaying the transition to a domestically-oriented economy by keeping productive capacity tied to the export sector.
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