Published January 14, 2009

Rumbles of unrest as China exports fall

Shrinking global demand leads to factory closures, mounting fears of unemployment

By ANTHONY ROWLEY

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(TOKYO) China's exports fell by 2.8 per cent in December - their steepest fall in a decade - it was reported yesterday as the global economic downturn continued to exert increasing pressure on the Chinese economy. The fall came after a 2.2 per cent drop in November and economists are predicting that China's export growth will slow to negative levels in coming months and be flat for 2009 as a whole.

The continuing fall in exports is 'not surprising', given the high level of factory closures by manufacturing firms in parts of China, which has totalled some 600,000 during recent months, prominent Chinese economist Harvey Chen told The Business Times from Shanghai yesterday.

Fiscal revenues in China are also falling rapidly, indicating that 'GDP growth is negative already on a quarterly basis', added Mr Chen, who is president of First Light Academy of Global Economics and a member of the China State Council overseas affairs expert advisory commission.

Achieving the government's 8 per cent GDP growth target for creating jobs and preventing social unrest in China will be 'exceptionally arduous', Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said in Beijing yesterday. Speaking in Switzerland, central bank governor Zhou Xiaochuan said he too saw a risk of missing the target.

Fears of rising unemployment in China are mounting as factory owners in the Pearl River Delta and Yangtze River Delta increasingly shutter their operations, forcing an estimated 10 million disgruntled rural migrants to return to their homes. Some estimates say that 150 million rural workers in all have migrated to urban areas.

The state-backed Chinese Academy of Social Sciences forecast 9.4 per cent urban unemployment by the end of 2008, to rise in 2009 as exports and production cool.

China's central government has, meanwhile, cut taxes and taken other steps to help struggling manufacturers. It has also announced a 586 billion yuan (S$128 billion) fiscal stimulus programme aimed at boosting economic activity and to offset the drop in industrial production.

Textile, steel and electronics exports from China are being hit the hardest.

'There is little hope that exports will recover this year, as developed economies remain mired in recession,' Sun Mingchun, a Hong Kong-based economist at Nomura Holdings, told Bloomberg.

China's monthly trade surplus with the United States in December fell by 9.5 per cent from a year earlier to US$12.4 billion, but the total 2008 surplus with the US rose 4.6 per cent to US$170.8 billion. The monthly trade surplus with the 27-nation European Union fell 1.6 per cent from a year earlier to US$11.7 billion, while the full-year 2008 surplus was up 19.4 per cent at US$160.2 billion. Reporting the further monthly drop in exports during December, China's customs agency said that the country's trade surplus for the whole of last year rose nevertheless by 12.7 per cent to a record US$296 billion, which analysts said could fuel further trade tensions with the United States.

Exports in December were worth US$111.2 billion, while imports were worth US$72.2 billion. The decline in China's imports also accelerated in December, with purchases of foreign goods falling by 21.3 per cent.The fall was due in part to lower prices for imported oil and raw materials but also reflected weaker demand in domestic industries such as construction, auto sales and steel.

That left the December trade surplus at US$39 billion - the second largest after last November's all time high of US$40.1 billion.