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Revitalizing China's gloomy exports (2)

By Lan Xinzhen (Beijing Review)

08:15, September 26, 2012

Gloomy exports

Exports were once—and to a certain degree continue to be—an engine of China's rapid economic growth. The 2008 global financial crisis caused demand in China's exports to tumble. In the second quarter of this year, China's GDP growth was 7.6 percent, the lowest in three years.

Although exports are beginning to show signs of improvement, market stability remains elusive. Many Chinese economists believe that steady export growth is the key to continuous economic increase.

Stimulating growth in domestic consumption has been touted by some as a driver of economic expansion. But given the fact that China's social security net remains weak and inflation high, the likelihood of consumption fueling economic growth is low. Domestic consumption makes up 70 percent of the U.S. economy. But it is unlikely for China to realize a similar rate in the near future. Exports, therefore, remain the spine of its economic growth and cannot readily be abandoned. And China must reverse its slump in exports in order to retain a sound economy.

For Shi, the current decline in China's exports is attributed to a number of reasons, including the sluggish markets in Europe, the United States and Japan, the country's three traditional export destinations.

According to data from the National Bureau of Statistics, bilateral trade between China and the European Union, the country's largest export market, dropped 1.9 percent between January and August. From the 1990s until the outbreak of the global financial crisis, China's exports to the EU had grown at an annual rate of 20 percent.

Trade between China and Japan, Asia's second largest economy, has fared no better. In the first eight months of this year, trade between the two giants dropped 1.4 percent. Although the U.S. economy is showing signs of recovery, the perils of high unemployment and the desire to bring manufacturing jobs back home are no boons for Chinese exports, not to mention the rampant trade protectionism and anti-dumping probes in the United States, with anti-subsidy investigations underway against China's photovoltaic industry, for example.

Other reasons for China's slumping exports are growing domestic labor costs and the appreciation of the renminbi, which positions "made-in-China" in the international market at a disadvantage, said Shi. Since the exchange rate reform in 2005, the renminbi has appreciated by 30 percent against the U.S. dollar, squeezing the profits of Chinese enterprises and weakening their competitiveness.

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