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Export data shows worst may be over
By Wang Yanlin |
July 16, 2009, Thursday
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Print Edition
Print Edition
THE pace of decline in China's exports last month signaled that the worst may be over for the sector hardest hit by the global financial crisis, but efforts to ramp up domestic demand continue as a backstop for the economy.
Chinese exports in June fell 21.4 percent from a year earlier to US$95.4 billion, after plunging 26.4 percent in May and 22.6 percent in April. Economists had forecast a 21 percent drop in the latest month.
Still, concerns persist about prospects for the global economy. A sustainable recovery in Chinese exports, traditionally the single largest engine of national growth, depends on a rebound in demand from developed countries gripped by recession, analysts said.
"The stabilizing trade figures laid a foundation for China's economic recovery, but a full recovery has yet to gain traction without the revival of external demand," said Xue Jun, an analyst at Changjiang Securities Co.
Wang Qing, a Morgan Stanley economist, agreed that caution is prudent in assessing the latest figures.
"China continued to post a large year-on-year decline in exports last month," he said. "Although it eased a bit from the fall in May, the improvement was weaker than our expectation."
China's trade surplus in the first six months of the year narrowed 1.3 percent from the same period in 2008 to US$96.9 billion. Imports in June fell 13.2 percent to US$87.2 billion, improving from declines of 25.2 percent in May and 23 percent in April.
On a seasonally adjusted basis, exports in June rose 4.5 percent from May while imports grew 2.2 percent, according to the General Administration of Customs.
As the world's biggest developing country, China is attempting to mitigate losses in its foreign markets by helping exporters sell their products domestically.
Domestic demand
"The government attaches great importance to exports, but domestic demand is still a key to the country's economic recovery," Xue said.
Beijing has taken the initiative. The nation's capital has organized four fairs since March to promote domestic sales of goods originally destined for overseas. The fairs were popular among consumers and prompted provinces such as Shandong and Zhejiang to follow suit.
Shanghai will hold a similar fair this week for retailers.
"We want to assist exporters in a way that can give them a long-term foothold in the local market," said Sha Hailin, director at Shanghai Commission of Commerce. "We hope retailers can help exporters transform their business and integrate them into the local sales network."
The Shanghai government also plans to establish a Website and launch special counters at stores for exporters to sell goods.
"The first step is to help them set up the sales channels," he said.
"Many exporters, though keen to enter the local market, are at a loss because they lack the knowledge and experience."
Still, the contraction in demand from overseas markets remains the biggest stumbling block to shoring up China's economy, Vice Minister of Commerce Zhong Shan said earlier this month.
"The government has put in place a series of supportive policies to help exporters," Zhong said.
"Our goal is to keep our share on the global market as the volume of exports is due to decline this year."
The World Bank estimated that global trade may contract 9.7 percent this year, while foreign direct investment to developing countries may plunge 30 percent.
"Economic damage to developing countries has been much deeper and broader than in previous crises," said the bank in a report.
The Chinese government is attempting to stanch the trade hemorrhage by removing export taxes on nearly 100 types of goods, including some agricultural products and fertilizers.
The government has raised rebates on export taxes seven times since August 2008 in a bid to help companies that ship products overseas. The subsidies amounted to 102.9 billion yuan (US$15.1 billion) in the first quarter, up 18.4 percent from a year earlier.
Surface problems
Besides cutting taxes and providing subsidies, China also exempted exporters from certain administrative charges and allowed them to delay the payment of their employees' social welfare fees to ease the pressure on their cash flow.
However, such measures can address only problems on the surface and do nothing to restore the battering in external demand, analysts said.
Zeng Peiyan, China's former vice premier, told the recent Global Think Tank Summit in Beijing that developing countries are bearing the biggest brunt of the financial crisis, with past strides in reducing poverty and bridging the gap between rich and poor nations now at risk.
"The world will experience a long and bumpy process to ride out the global financial crisis," Zeng said.
"Evidence shows that developing countries are the worst affected."
The epicenter of the global financial crisis is no doubt the United States. But like an earthquake, the aftershocks ripple afar.
Joseph E. Stiglitz, Columbia University professor and economics Nobel laureate, said the US downturn started with a failure in its financial system, but the effects have hit the real economies of the developing world, with declines in exports, reduced remittances, lower foreign direct investment and precipitous falls in capital flows.
Direct foreign investment in China in May dropped 17.8 percent from a year earlier to US$6.4 billion, the eighth straight monthly drop.
Chinese exports in June fell 21.4 percent from a year earlier to US$95.4 billion, after plunging 26.4 percent in May and 22.6 percent in April. Economists had forecast a 21 percent drop in the latest month.
Still, concerns persist about prospects for the global economy. A sustainable recovery in Chinese exports, traditionally the single largest engine of national growth, depends on a rebound in demand from developed countries gripped by recession, analysts said.
"The stabilizing trade figures laid a foundation for China's economic recovery, but a full recovery has yet to gain traction without the revival of external demand," said Xue Jun, an analyst at Changjiang Securities Co.
Wang Qing, a Morgan Stanley economist, agreed that caution is prudent in assessing the latest figures.
"China continued to post a large year-on-year decline in exports last month," he said. "Although it eased a bit from the fall in May, the improvement was weaker than our expectation."
China's trade surplus in the first six months of the year narrowed 1.3 percent from the same period in 2008 to US$96.9 billion. Imports in June fell 13.2 percent to US$87.2 billion, improving from declines of 25.2 percent in May and 23 percent in April.
On a seasonally adjusted basis, exports in June rose 4.5 percent from May while imports grew 2.2 percent, according to the General Administration of Customs.
As the world's biggest developing country, China is attempting to mitigate losses in its foreign markets by helping exporters sell their products domestically.
Domestic demand
"The government attaches great importance to exports, but domestic demand is still a key to the country's economic recovery," Xue said.
Beijing has taken the initiative. The nation's capital has organized four fairs since March to promote domestic sales of goods originally destined for overseas. The fairs were popular among consumers and prompted provinces such as Shandong and Zhejiang to follow suit.
Shanghai will hold a similar fair this week for retailers.
"We want to assist exporters in a way that can give them a long-term foothold in the local market," said Sha Hailin, director at Shanghai Commission of Commerce. "We hope retailers can help exporters transform their business and integrate them into the local sales network."
The Shanghai government also plans to establish a Website and launch special counters at stores for exporters to sell goods.
"The first step is to help them set up the sales channels," he said.
"Many exporters, though keen to enter the local market, are at a loss because they lack the knowledge and experience."
Still, the contraction in demand from overseas markets remains the biggest stumbling block to shoring up China's economy, Vice Minister of Commerce Zhong Shan said earlier this month.
"The government has put in place a series of supportive policies to help exporters," Zhong said.
"Our goal is to keep our share on the global market as the volume of exports is due to decline this year."
The World Bank estimated that global trade may contract 9.7 percent this year, while foreign direct investment to developing countries may plunge 30 percent.
"Economic damage to developing countries has been much deeper and broader than in previous crises," said the bank in a report.
The Chinese government is attempting to stanch the trade hemorrhage by removing export taxes on nearly 100 types of goods, including some agricultural products and fertilizers.
The government has raised rebates on export taxes seven times since August 2008 in a bid to help companies that ship products overseas. The subsidies amounted to 102.9 billion yuan (US$15.1 billion) in the first quarter, up 18.4 percent from a year earlier.
Surface problems
Besides cutting taxes and providing subsidies, China also exempted exporters from certain administrative charges and allowed them to delay the payment of their employees' social welfare fees to ease the pressure on their cash flow.
However, such measures can address only problems on the surface and do nothing to restore the battering in external demand, analysts said.
Zeng Peiyan, China's former vice premier, told the recent Global Think Tank Summit in Beijing that developing countries are bearing the biggest brunt of the financial crisis, with past strides in reducing poverty and bridging the gap between rich and poor nations now at risk.
"The world will experience a long and bumpy process to ride out the global financial crisis," Zeng said.
"Evidence shows that developing countries are the worst affected."
The epicenter of the global financial crisis is no doubt the United States. But like an earthquake, the aftershocks ripple afar.
Joseph E. Stiglitz, Columbia University professor and economics Nobel laureate, said the US downturn started with a failure in its financial system, but the effects have hit the real economies of the developing world, with declines in exports, reduced remittances, lower foreign direct investment and precipitous falls in capital flows.
Direct foreign investment in China in May dropped 17.8 percent from a year earlier to US$6.4 billion, the eighth straight monthly drop.
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