Chinese exports poised to ride out crisis

By Ding Qingfen (China Daily)
Updated: 2009-09-10 08:38

While China's exports are expected to stay sluggish in the months ahead with the recovery of major economies including the United States and Europe still in limbo, many say one thing is certain - the country is playing a more significant role in global trade, stimulated by the sweeping global economic crisis.

Chinese exports poised to ride out crisis

The latest report by the World Trade Organization (WTO) shows that China for the first time surpassed Germany and became the largest exporter worldwide, during the first half of this year.

Although China took the lead with a minimal gap, the news is a milestone of sorts in the country's trade history, as Germany has firmly held the top position for years despite a red-hot growth of almost 30 percent in China's exports since it entered the WTO in 2001.

On July 22, the WTO already predicted that it was highly possible China would beat Germany to become the world's largest exporter this year.

Economists hold the same view on the sustainability of the momentum.

"Taking out the factor of foreign exchange fluctuation, China will continue to take the crown in the months and years ahead," Li Daokui, a senior economist and director of the economic and management institute under Tsinghua University, told China Daily.

Cai Haitao, inspector of the department of policy research under the Ministry of Commerce, agreed.

"China is grabbing a larger share in the global market and the nation is rising further and the stimulus is the economic crisis."

According to Customs, the share of China's exports in its 12 major trade partners grew from 16.2 percent at the beginning of 2008 to 19.3 percent in the first quarter of 2009.

During the first half, China's exports to developed nations including the US, Japan, Australia and Canada picked up by 4.1, 3.8, 2.8 and 1.8 percent, respectively, from a year earlier. Those to developing nations including Brazil, Peru and Thailand rose by 0.8, 2.4 and 1.3 percent, respectively, year-on-year.

"Excluding foreign exchange movements, China is expected to overtake Japan as the world's No 2 economy," Cai said.

Dark clouds

Hurt by weak demand from around the world, China's exports since last November has declined for nine consecutive months. From January to July, the country's exports dropped by 22 percent to $627 billion, while imports fell by 23.6 percent to $519.6 billion. In July alone, exports were recorded at $105.4 billion, down by 23 percent from a year earlier. Imports, at $94.7 billion, were down by 14.9 percent.

Although exports have eased in recent months and new orders from overseas are increasing, economists do not believe they are recovering.

"There is nothing to be excited about," said Steven Green, head of research of Standard Chartered China.

Still, the Purchase Management Index has exceeded 50 percent for three consecutive months since May, indicating that the manufacturing industry is improving. But Chinese media recently reported that new orders for Christmas gifts dropped sharply, despite the fact that July and August are usually the busiest period for Christmas gifts manufacturers and exporters around the Pearl River Delta region, which is also the largest manufacturing base worldwide.

"A Christmas gifts factory is usually busy from March to September, but since last November, most of the equipment in Guangdong province have been left unused. There is big shrinkage of new orders from the US and Europe," said Lin Zhanpeng, director of the Huida Christmas Ornament Company based in Guangdong.

"The year-on-year decline during the third quarter will remain at 20 percent, but the figure for the last quarter is expected to be positive in single digits. From the perspective of the whole year, the decline for exports will range from 15 to 20 percent," said Zhang Xiaoji from the development research center of the State Council.

Since last August, China has raised the export tax rebate seven times, covering 2,600 categories including grain, fertilizer and steel, but the move, as analysts explained, could not boost the exports even as it stabilized and prevented them from sliding further.

Overseas demand is the decisive factor for where exports go. Considering the dim economic situation, especially for the US and Europe, China's exports should grow slowly even if things turn positive, Cai said.

"Economic shrinkage for developed nations has been slowing since the second quarter, but there is little possibility that robust recovery will appear in the short term," he said.

The unemployment rate in the US, Japan and Europe has been forecast to be as high as 10.1, 5.7 and 12 percent, respectively, in 2010. Based on forecasts by 28 international consultancy companies, economic growth for the three major economies in 2010 will be 2.1, 0.4 and 1.4 percent, and jump to 3.4, 1.6 and 1.8 percent in 2012.

Rising trade protectionist measures launched by nations worldwide will also pose a big threat to exports.

Since late last year, China has become the major target of trade remedy measures launched by developed nations including the US and Europe, as well as that of developing nations represented by India and Turkey. From last October to this June, these moves against China valued at as high as $9.8 billion, which was an increase of 113 percent compared with that of the first three quarters of 2008.

Officials from the Ministry of Commerce (MOFCOM) said China will continue to be targeted, especially by the US and India, in the months ahead.

Similarly, "green technology-related protectionist measures" carried out by developed nations will become the new trade barriers for Chinese exports, they said.

An example: In late June, the US House of Representatives approved the initiation of carbon tariff on the imports of categories such as steel, aluminum and electrical and mechanical products from developing nations including China.

"Chinese exporters need to focus more on quality and develop more value-added goods to strengthen its competitiveness in the global trade," said Li from Tsinghua University.

Imports boost

With the 4-trilllion-yuan stimulus package taking off, China's domestic demand is quickly being driven up to boost the nation's imports in turn.

During the first half, China's GDP growth was 7.1 percent, 3.8 percent of which was created by domestic consumption.

"China should focus more efforts on stimulating domestic consumption, rather than pushing up exports and adding investments," MOFCOM vice-minister Jiang Zengwei said in an article on its website.

Although growth has been negative, decline in the imports, since June, has been easing off and smaller than that of the exports, encouraged by growing domestic consumption. Experts said the momentum would continue.

As the stimulus package boosted the automobile, real estate and steel-making industries, China's purchase of iron ore and oil saw record highs during the past few months.

According to experts, as the demand for these commodities is poised to grow and their prices are expected to increase, imports will be ahead of exports in getting rid of negative growth. Resource-rich countries such as Latin America, Africa and Australia will also benefit.

Power beyond

Since China's entry into the WTO, the nation's foreign trade has been urging by 26.1 percent on average from 2002 to 2008. In 2008, foreign trade reached $2.56 trillion, 15 times of the 1949 to 1978 period's total.

China's trade partners also surpassed 220 in 2008, more than five times of that in 1978. The top five trade partners accounted for 57 percent of China's foreign trade and the top 10, 75.9 percent of the total.

China is also actively seeking to establish free trade areas (FTA) with trade partners under the framework of the WTO. The country has so far signed FTAs with eight nations or regions. The first of these was with the Association of Southeast Asian Nations and negotiations for six more are under way.

The Canton Fair, which started in 1957, has been widely seen as the mirror that reflects China's foreign trade prospects. For a long period, one-quarter to one-third of foreign trade deals were made during the fair annually. From 1957-2008, deals signed during the fair exceeded $500 billion.