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Domestic demand expansion urged in four sectors as exports falter
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13:02, April 16, 2009

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Faltering exports put a dent in the industries of steel, machinery, textile and light industry in China as the global demand contracted because of the deepening financial crisis. Analysts said these sectors should shift focus on domestic demand.

China's exports, a main driver for its economic growth, recorded a year-on-year 2.2 percent drop in November. It fell for the first time in seven years because of the economic downturn.

March was the fifth straight month that exports fell, posting a17.1 percent drop from a year earlier.

To counter further slowdown, China rolled out plans to revive the economy. Analysts said enterprises in the four sectors should look to domestic demand for bigger contribution to its economy.

STEEL INDUSTRY

China's steel industry was one of the worst hit by the financial crisis as demand shrank sharply. Global steel prices plunged since October of last year, which helped push Chinese steel mills into the red.

In the first quarter, the domestic steel market was still gloomy, with steel prices close to the level in 1994. Losses continue to haunt the sector.

Wu Xichun, honorary president of China Iron and Steel Association (CISA), blamed the waning demand and overcapacity for the slump in the steel market.

As an important consumer, the country's real estate sector slid into slack. The area for newly built houses in the first quarter tumbled 16.2 percent to 201 million square meters.

Dim exports added to the woe. China exported 5.14 million tonnes of steel in the first quarter, down 54.9 percent from a year ago.

Growing protectionism made the situation worse. Last week the European Union decided to impose anti-dumping duties on seamless steel imported from China.

CISA secretary-general Shan Shanghua forecasted China's exports would tumble 80 percent in 2009.

To sustain exports, China raised export rebate for 23 types of steel products starting April 1. However, analysts said the move had limited effect as the global demand was weakening. The development of the steel industry should instead rely on domestic demand.

Some sectors showed signs of recovery as the government set to boost domestic demand.

In March, automakers produced 1.1 million vehicles, up 5.55 percent year on year, according to the China Association of Automobile Manufacturers. First-quarter sales rose 3.88 percent to2.68 million units, and production totaled 2.57 million units, up 1.91 percent.

The association said sales were buoyed by government stimulus policies to halve the purchase tax on passenger cars to five percent for models with engines of less than 1.6 liters.

In the first quarter, the area of commercial houses sold rose 8.2 percent to 113 million square meters. Analysts said the rise in sales was mainly driven by surging credit and by stimulus policies, such as tax cuts.

However, overcapacity of the steel industry in China held back steel prices from a rebound. China's crude steel capacity reached 660 million tonnes at the end of 2008, exceeding the output of 500million tonnes for the whole year.

China plans to cap its crude steel output at 460 million tones in 2009, down 8 percent year on year.

Analysts said the steel industry would not see a turnaround until mills limit their output by eliminating outdated capacity.

MACHINERY INDUSTRY

China hammered out a bunch of policies since the fourth quarter of last year, which benefited the crisis-hit machinery industry --including the massive infrastructure construction plan to boost industries of auto and equipment manufacturing, and subsidies for farmers' purchase of home appliances.

These measures, aimed at expanding domestic demand, have paid off. Industrial output of China's large-scale machinery sector rose 5.4 percent year on year in the first two months of 2009.

Farm machinery and automotive sectors performed well. In the first two months of 2009, output of the farm machinery sector rose21.6 percent year on year, after subsidies were given to encourage farmers to buy farm machinery.

Cai Weici, vice-chairman of China Machinery Industry Federation, said the financial crisis would not have an immediate effect on the machinery sector. He expected the fallout would emerge this year, saying the first half of this year might see the slowest growth of the sector and the second half might see a recovery.

According to customs data, exports of mechanical and electrical products declined 20.8 percent in the first quarter.

TEXTILE INDUSTRY

Wang Tiankai, vice president of the China National Textile and Apparel Council (CNTAC), said faltering exports was the biggest challenge for textile enterprises.

Industry output of major textile enterprises grew 5.8 percent year on year in the first two months.

However, in the first quarter textile exports declined 15.6 percent to 12.02 billion U.S. dollars, and garment exports fell five percent to 22.05 billion U.S. dollars.

To cushion the blow from demand contraction, the government raised the export rebate for textile and garment items to 16 percent, starting from April 1.

CNTAC spokesman Sun Weibin said higher export rebates would help restore confidence in the industry and sustain steady growth.

Sun noted the industry must try to explore the domestic market while maintaining exports.

LIGHT INDUSTRY

The light industry posted recovery this year, buoyed by stimulus plans and the subsidy plan for farmers' to purchase home appliances.

Industrial output of the sector showed a 7.6 percent year-on-year growth in the first two months. It was 3.8 percentage points higher than the whole industry.

The first quarter saw an 8.5 percent drop in exports of furniture and units, 13.8 percent drop in toys, 16.5 percent drop in plastic products and 14.9 percent drop in colored TV sets.

The government decided to raise export rebates to 17 percent for colored TV sets, 13 percent for glass products and 11 percent for plastic products.

Chen Shineng, honorary president of China National Light Industry Council, urged enterprises to explore new markets such as the Middle East, Russia, Southeast Asia and South America, while maintaining shares in the U.S., Europe and Japan.

They should rely on domestic market and develop products for new rural construction, healthcare, education and post-quake reconstruction, he said.

The financial crisis was a test for the country's light industry, he added, urging technology improvement and innovation.

Source: Xinhua



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