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Exporters yet to fully cash in on domestic demand
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10:00, July 27, 2009

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China may have become the largest auto market because of the unexpected surge in the sale of vehicles in the past six months, but its prospects of becoming the world's largest goods exporter don't seem all that rosy.

Last year, China's exports worth 1.43 trillion U.S. dollars was slightly lower than Germany's 1.47 trillion dollars. But the WTO has forecast that despite a 10-percent drop in world trade volume this year, China will overtake Germany as the largest goods exporter because it is well positioned to reap the benefits of a likely global recovery faster.

The WTO forecast should have come as heartening news to Chinese policymakers, justifiably worried over declining overseas demand, and must have enthused Chinese exporters.

Government statistics point toward an improvement, too. In June, China's exports fell 21.4 percent year-on-year, 5 percent lower than in May. Imports, too, picked up last month, falling 13.2 percent compared with 25.2 percent in the previous month mainly because of the rise in domestic investment and consumption.

If the world economy recovers on the back of a strong rebound of the Chinese economy, as is expected, the rate of decline in China's exports would narrow down further in the second half of this year. Hence, it will not be surprising if Chinese exporters maintain, if not increase, their share of global trade.

The double-digit export-oriented annual growth of the past few years made China focus more on foreign trade. But global recession has put a question mark on exports as a long-term growth engine.

To a certain extent, the government's 586-billion dollar stimulus package and record bank lending are meant to help prevent exports from taking a plunge. And the expected rise of China as the world's top exporter raises exporters' confidence that they could swim against the tide of recession and get a firmer grip on the global market.

But that doesn't mean Chinese exporters can slow their pace of tapping the domestic market. Here's the reason why. A strong rebound in China's exports depends largely on the economic recovery of major developed economies. That means it's too early for Chinese exporters to put all their eggs in one basket. Instead, they should use the occasion to dig deeper into the domestic market.

The exporters shifted their attention to the domestic market because of the global economic crisis and the accompanying fall in overseas orders. With some government help, some of them have even found a footing in the domestic market. It makes great economic sense for them to retain their footing, and for others to try and get one by capitalizing on retailers' interest and domestic consumers' demand for meant-for-exports products.

Once the Chinese economy rebounds, which in all probability will be sooner than later, domestic consumption will rise further. We've seen how pent-up demand has driven up car sales, which should be a lesson for the exporters to try and cash in on the next consumption boom, something that an increasing number of foreign businesses are already trying to do. Chinese exporters should know consumers at home are ready to open their wallets for high-quality, for-exports goods (which are less expensive than foreign brands).

Exporters can, with relative ease, increase their share in the domestic market because it offers more room for maneuvering and protectionism is rising in some countries.

By diverting a part of their huge output, exporters could help reduce the global trade imbalance, too. But to do that they will need policymakers' help.

Source: China Daily

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