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Trade: China's exports need repairs

By Yan Xinpu (China Daily)
Updated: 2008-12-22 07:53

In November Chinese exports witnessed their worst collapse since 1999, and the downward trend is expected to continue due to the expected slowdown of the domestic economy and trade protectionism overseas.

Exports have been the primary engine of Chinese economic growth. Scientific research shows the national economy grows by about a 0.82 percentage point when the nation's exports increase by 1 percent.

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From 1979 to 2007, China's trade volume enjoyed an annual growth of 17.4 percent, and the annual growth rate of the exports was a little higher, 18.1 percent. In 2007, the exports grew by 26 percent compared with 2006.

By the end of 2007, China's GDP enjoyed five consecutive years of double digit growth, and in 2007, the growth rate was the highest ever, 11.4 percent.

But that is history. According to the General Administration of Customs, during the January-October period Chinese exports rose by 21.9 percent year-on-year, 4.6 percentage points lower than last year's. Comparatively, the imports grew by 27.6 percent year-on-year, 7.8 percentage points higher than that of 2007.

The most disappointing figures that stunned many economists were November's when exports fell by 2.2 percent to $114.9 billion, the first monthly decline in the past seven years.

International financial organizations have since unanimously said that the nation's GDP in 2008 is expected to be below 10 percent.

And due to the global slump, prospects for Chinese exports will continue to be dim.

The World Bank predicted the global economy in 2009 would grow only 2.5 percent. The International Monetary Fund is more pessimistic, lowering its previous growth forecast from 3 percent to 1 percent and saying the US, Europe and Japan, China's three major trade partners, will even see negative growth.

They are all sad signals for the Chinese economy. It is estimated that drop of 1 percentage point in the economic growth of the US and Europe would send the Chinese exports falling by 4.75 percent, and the exports of electronics and textiles down by 0.5 percent respectively.

This year, the Chinese trade volume is expected to reach $2.6 trillion, up by 20 percent on a yearly basis, dwarfed by that of 23.3 percent in 2007. The Asian Development Bank predicted Chinese exports would grow by 19 percent in 2008, compared to 26 percent last year.

Next year will be much harder for Chinese exports. Isaac Meng, economist at BNP Paribas, was quoted by Financial Times as saying the drop of exports in November is just "the beginning of a prolonged export contraction".

Besides the slumping economy at home and abroad, increasingly growing prices for raw materials have also pushed up the manufacturing costs higher and pose another threat.

Statistics from the Ministry of Commerce say raw materials for the chemical, mechanical and electrical and light industries have seen their prices rise by as high as 20 percent, and fees on shipment overseas increase by 30 percent.

Chinese exports, famous for their lower prices, will lose their competitive edge against their counterparts from the developed and developing nations.

Furthermore, nations will more frequently use trade protectionism to prevent their own economies from getting worse. The US, Europe and Japan have set various trade barriers in manufacturing, technological standards and certification, which is another difficulty for Chinese exports.

Exports dwindle

According to the National Bureau of Statistics, in 2007, the exports made up 37 percent of Chinese GDP, and exports of cargo and service contributed about 21.5 percent to the growth of the Chinese economy.

But in the first half of 2008, only 4.9 percent of the nation's economic growth has come from the cargo and service exports, 16.8 percentage points lower than the same period last year.

Exports of the labor-intensive categories such as toys, garments and plastic-made goods bear the brunt.

From January to October, exports volume of clothes and accessories, toys, furniture and plastic products grew by 2.8, 3.7, 22.7 and 3 percent year-on-year respectively, 20.1, 16.4, 4.5 and 6.2 percentage points down respectively from a year early.

The most recent Canton Fair where foreign buyers have traditionally made attractive orders witnessed a sharp fall of about 10 percent year-on-year in orders. The orders from the US posted the biggest drop, about one-third of 2007's volume, to $1.63 billion, said a report from the Xinhua News Agency.

Europe, the US and Japan are China's top three trade partners. And bi-lateral trade respectively grew by 25, 13.6 and 17.7 percent during the January-October period.

Despite the fall from the developed regions, demand for Chinese exports from newly emerging markets like Brazil, Argentina and especially India has been growing.

India is now China's 10th trade partner. In the past 10 months China-India trade volume rose by 49.5 percent year-on-year, the highest between China and the top 10 trade partners.

Stimulus measures

However, the grim situation will not last long.

The Chinese government recently pledged to do everything it could to maintain "stable and healthy" growth next year. During the three-day Central Economic Work Conference, an annual meeting of top policymakers, officials said they would conduct a structural tax reduction in 2009 in a move to lessen the tax burden on enterprises and the public to encourage local exports and public spending.

This year, the government has raised the export tariff rebate ratio on different categories of goods to help the exporters reduce the losses brought by the diving demand overseas.

From November 1, the ratio on textiles, garments and toys rose to 14 percent, and ratios on another 3,770 labor-intensive items and machine building and electronics industries, which were hard hit by the global financial tsunami and whose exports accounted for 27.9 percent of the nation's total, were also lifted in December. Export tariffs on certain steels, chemicals and grains were also removed.

And a positive financial policy has also been under way to help Chinese small and medium-sized companies survive.

In mid-September, the People's Bank of China, the central bank, announced it would to reduce the benchmark loan interest rate, the first of its kind in the past six years, and also lower the reserve requirement ratio for commercial banks after five hikes this year.

For the Chinese government, there are many more measures worth considering and implementing to boost the economy, such as adding more investment into infrastructure, transportation, environmental protection, and public services, more flexible policies on credit and currency, more export-friendly policies for industries that enjoy advantages against their overseas counterparts and improving the service industry.

The author is a senior expert with the National Bureau of Statistics. China Business Weekly reporter Ding Qingfen also contributed to the article.