Things Aren't Bad? Buckle Up. China's Imports AND Exports Dropping Like a Stone

Unexpected Drop in China’s Imports and Exports


A man rode a bicycle past containers at a port in Shanghai on Wednesday.

By ANDREW JACOBS and DAVID BARBOZA
Published: December 10, 2008

BEIJING — Chinese exports registered their largest drop in nearly a decade last month, suggesting that the global recession could be far worse than many economists had previously predicted.

According to statistics released by the Chinese government Wednesday, exports fell 2.2 percent from November 2007 to November 2008 — the largest year-over-year monthly decline since April 1999.

Even at a time of increasingly dour economic news, the Chinese trade numbers stunned many economists. They struck an ominous note for China, where labor unrest has increased markedly as the economy has slowed in the last month.

Many analysts had anticipated that the monthly trade figures would show China’s export machine slowing along with the global economy, but few had expected it to slip into reverse. In October, exports surged 19.2 percent year-over-year.

“We were expecting a slowdown, but the magnitude is a bit shocking,” said Wang Tao, an analyst at UBS Securities.

Most worrisome, China’s economic dynamism of the last 20 years has been powered by the twin engines of exports and foreign investment. But in other sobering news, the government said that direct foreign investment fell 36.5 percent from a year earlier in November.

In recent months, evaporating export demand had already forced thousands of factories to close in the Pearl River Delta of Southern China. Tens of thousands of jobs have disappeared, leading to protests by unemployed workers demanding back pay.

Late last month, President Hu Jintao warned that the global financial crisis was threatening to undermine three decades of head-spinning expansion. “China is under growing tension from its large population, limited resources and environmental problems, and needs faster reform of its economic growth pattern to achieve sustainable development,” he said in a speech published in the Communist Party newspaper, People’s Daily.

Analysts say the sharp export slowdown could make it more difficult for Beijing to stimulate the economy, and could lead to the closure of more factories in coastal areas.

China’s slowing exports will also be another sharp blow to global growth. Together the trade figures strongly suggest that China will not be a savior to the global economy, taking up the slack from the slumping United States, Europe and Japan, as some had hoped. Indeed, when combined with further signs of a slowing economy in Japan, the picture of Asia, once the fastest-growing continent, becomes one of spreading economic gloom.

Slowing exports will put added pressure on the Chinese government. Already the stock market and real estate markets have plummeted, industrial production is in decline and thousands of factories are being closed.

Just last month, officials in Beijing announced a $586 billion stimulus package. In recent weeks, the government has also slashed interest rates, cut taxes on stock trades and announced other measures aimed at lifting domestic consumption, in the hopes that it will replace falling exports.

Imports to China also plunged sharply last month, falling 17.9 percent and widening China’s trade surplus to a record $40 billion, from $35.2 billion in October.

After the trade figures were released, China National Radio reported that the government was vowing to expand spending and cut taxes further next year in an effort to spur job creation and bolster agriculture, social security, education and small and medium-size enterprises.

Beijing will also seek to ensure “healthy and stable” growth of the nation’s property markets, which have slowed greatly in recent months.

But with leaks springing up all over China’s economy, it is unclear where the government can hold back economic, and potentially political, upheaval.

The government’s decision in recent weeks to allow the Chinese currency, the yuan, to fall against the dollar after a long period of appreciation seems to be a signal that the government is moving to shore up its exporters, by making their goods cheaper and, therefore, more competitive.

That — as well as China’s increasing trade imbalance — could signal greater tension ahead with the United States. In the one piece of seemingly positive news, China’s producer price index, a measure of inflation at the factory level, fell to its lowest rate in two years, according to the government. That figure — 2 percent in November — rose 6.6 percent in October. In August, when that number hit 10.1 percent, the government was focused on stemming the threat of inflation and moderating China’s breakneck growth.

In just four months, the situation has changed startlingly. And lower imports suggest falling demand and greater consumer and business fear.

Exports, meanwhile, are a mainstay of China’s economy; by one measure they make up 40 percent of gross domestic product. While some experts dispute that figure and question other official economic statistics from Beijing, analysts say the slumping demand for Chinese goods is likely to pull down the nation’s growth rate, which was 9 percent in the third quarter, close to or even below the 7 percent figure that many Chinese economists contend is the minimum for maintaining social stability.

Qu Hongbin, the chief China economist at HSBC, said he expected things to get worse in the coming months as the global recession further saps the demand for Chinese goods. He said exports could fall as much as 19 percent in the first quarter of 2009.

“Combined with cooling property markets, this points to the rising risk of a hard landing,” he said in a statement. “It’s official: as the world’s workshop, China will suffer as the global downturn deepens.”

Since it joined the World Trade Organization in 2001, China’s exports have quadrupled, helping transform it into the world’s fourth largest economy.

In a survey of more than a dozen analysts last month, no one predicted that imports would decline. The drop in exports stretched across all major trade commodities with steel leading the downward spiral.

Exports to all of China’s trading partners suffered, with those to the United States down 6.1 percent. In October, they were up 12.4 percent.

Andrew Jacobs reported from Beijing and David Barboza from Shanghai.

 

They also have one of the largest, if not THE largest, war chests of money to spend their way out. And they can manipulate their currency (even more so than before).

I doubt much that the Politburo will risk civil unrest.

 

I don't know. I think nervous reactions are warranted here. We're seeing something real and ominous unfolding.


Qu Hongbin, the chief China economist at HSBC, said he expected things to get worse in the coming months as the global recession further saps the demand for Chinese goods. He said exports could fall as much as 19 percent in the first quarter of 2009.

“Combined with cooling property markets, this points to the rising risk of a hard landing,” he said in a statement. “It’s official: as the world’s workshop, China will suffer as the global downturn deepens.”

...

In a survey of more than a dozen analysts last month, no one predicted that imports would decline. The drop in exports stretched across all major trade commodities with steel leading the downward spiral.

 

sure they can begin to liquidate there treasury holdings, but that would drive up borrowing costs for the consumers there trying to supply goods too.

 

The decline in imports may not turn out to be as ominous as the data suggests. Look at Irone ore for example., the price China pays is set at annual negotiations (in the past set in April of each year). The price set this past April is substantially higher than the price that Iron Ore is commanding at present so China is only buying what they absolutely have to for the rest of the year as they fully expect to buy at much lower prices next year. Interestingly the price negotiations have been moved up and will now take place in January rather than April, most likley because China needs Iron Ore and can not wait until Aprils new price. With the new price set in January we should see imports rise again. I am sure that this protocol is not limited to Iron Ore but is being played out in many commodities that China imports.

 

What happens when china depegs their currency and is this the kind of econimuc event that would cause it?

 

So true

China is the next bubble to go. Real Estate, Equities, Bonds, whateva.

1 Trillion is a drop in the bucket. Whats the Government gonna do? Hand-out a trillion dollars to buy a years worth of lay-away product sitting in Chinese warehouses?

Then what? Hope America starts buying again?

 

They should allow the Yuan to skyrocket and give purchasing power to the Chineze.

The West is tapped out, why don't they see that?

 

We're not tapped out, Slowbama will simply call China and ask for a cash advance check with a credit limit increase, and maybe some reward points. Let the good times roll again.