Commentary

China Watch

Forum Digests

Columnists

Letters

Shifting to a new engine

(China Daily)
Updated: 2009-03-12 07:45

The sharp fall of China's exports and trade surplus in February will spark new worries about the country's growth prospects.

Such uneasiness is somewhat justified given the latest World Bank forecast that trade will fall to its lowest point in 80 years in 2009, as economic hardship ripples across the globe.

However, the export gloom should not blind us to the ray of hope that China's economic slowdown may be reversed by a boost in domestic demand.

Policymakers should further cut export taxes to cushion the impact of a collapse in global demand.

Yet, the more important task is to counteract declining exports to effectively boost domestic demand and reduce the country's reliance on trade.

The latest statistics show that China's exports dropped 25.7 percent from a year ago to US$64.9 billion last month, while its trade surplus plunged to US$4.84 billion, less than one-seventh of the figure for January.

Although the exports fall, the largest on record according to many observers, is much weaker than expected, some other Asian economies have already witnessed severer export contractions in previous months.

Since the global economy is predicted to shrink this year for the first time since World War II, it seems unlikely that export demand can recover any time soon.

Undoubtedly, this bleak outlook for the labor-intensive export sector requires urgent government support to avoid more job losses.

But good news also comes along with dismal trade figures. Urban fixed-asset investment climbed 26.5 percent in January and February to 1.03 trillion yuan (US$150 billion) from a year earlier.

The better-than-expected investment growth, up from December's 21.9 percent and the full-year 2008 rate of 25.5 percent, indicated that China's massive stimulus package has kicked in to create real domestic demand.

It should please Chinese policymakers who are targeting an 8 percent economic growth this year to expand employment for both urban and rural residents, increase people's incomes and ensure social stability.

If the increase marks the start of an investment boom, the Chinese economy may be set to ride out the global economic recession on a powerful engine of robust domestic demand.

As to the global consequences of that new growth engine, China's trade figures offer a clue. Though imports fell 24.1 percent year-on-year last month, China's purchase of foreign goods and services actually jumped from US$51.3 billion in January to US$60.5 billion in February.

(China Daily 03/12/2009 page9)