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Short-term trade recovery expected to elude China

By Zhang Monan (Global Times)

09:17, May 16, 2012

According to statistics released last week from China's General Administration of Customs, the nation's imports and exports both took a nosedive last month. China's exports increased by only 4.9 percent year-on-year in April, down from a year-on-year growth rate of 8.9 percent in March and well below the 8.5 percent figure the market had anticipated. Meanwhile, the nation's imports inched up by only 0.3 percent year-on-year in April, down dramatically from both the previous month's year-on-year gain of 5.3 percent and the 10.9 percent which was predicted by economists.

Despite these disappointing numbers, many analysts are optimistic that China's trade will pick up again in the coming quarters. Yet, with weak demand both at home and abroad, I think it will be a long time before China's imports and exports experience the same kind of robust growth witnessed in years past.

China's export orders will likely continue to falter as demand from the nation's major trade partners, the European Union and the US, remains depressed due to ongoing economic concerns in these areas. Specifically, fears of a further recession in the eurozone are expected to drive down demand for Chinese goods in the months ahead. In April, the eurozone's manufacturing purchasing managers' index (PMI) dropped to a three-year low of 45.9 percent, according to Markit Economics, a global business service provider. While the US's manufacturing PMI looked slightly better after jumping 1.4 percent to 54.8 percent last month, with a raft of fiscal stimulus policies set to end this year, the country's economic recovery may be slower than expected.

At the same time, sluggish economic growth in China will likely weigh on domestic demand and keep imports down. Business owners in China currently show little interest in further investment and expansion, as measured by recent drops in long-term corporate loans. According to statistics from the People's Bank of China (PBC), the volume of long-term loans made to businesses in April dropped 46 percent from the same month last year, while about three quarters of the financing vehicles issued to new enterprises were for short-term loans.

Along with decreases in lending, enterprises in China are clearly losing confidence in the country's economy. According to a survey of 5,000 companies by the PBC, an index tracking enterprises' confidence in the country's economy sank to 39.2 percent in the first quarter of this year, the third consecutive quarter of decrease, far below the 50 percent mark which separates optimism from pessimism. As China's business climate gets frostier and its entrepreneurs become less ambitious, it's inevitable that imports will suffer in the process.

Signs of a slowdown in foreign trade growth were already apparent earlier this month at the Canton Fair, the country's largest trade show and a bellwether for China's import and export outlook. The value of export transactions declined at the most recent fair by 5 percent, the first decrease since the spring of 2009.

Before China's trade situation gets any worse, I recommend the government implement rebate policies and lower taxes for importers and exporters.


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