China’s Exports Fall for First Time in 7 Years as Demand Slumps

China’s Exports Fall for First Time in 7 Years as Demand Slumps


Dec. 10 (Bloomberg) -- China’s exports fell for the first time in seven years as a world recession slashed demand, adding pressure for more measures to sustain growth in the world’s fourth-biggest economy.

Exports declined 2.2 percent in November from a year earlier after gaining 19.2 percent in October, the customs bureau said in a statement on its Web site today. The median forecast of 14 economists in a Bloomberg News survey was for a 14.8 percent gain.

China may keep cutting interest rates, add to a 4 trillion yuan ($581 billion) spending plan and stall gains by the yuan against the dollar to help exporters and stimulate the economy. At stake is the nation’s contribution to global growth, forecast by Merrill Lynch & Co. to be 60 percent next year.

“The export decline is completely out of the government’s control, the problem is external demand,” said Sherman Chan, an economist at Moodys.com in Sydney. “They will have to announce a new spending package more powerful than the first.”

Imports fell 17.9 percent, after climbing 15.6 percent in October, as commodity prices declined and weakness in manufacturing and construction cut demand for raw materials.

The trade surplus was a record $40.09 billion.

Exports are slumping across Asia, with shipments from Taiwan and South Korea declining last month by the most since 2001 because of China’s economic slowdown and recessions in the U.S., Europe and Japan.

Deepening Slowdown

Chinese leaders are meeting in Beijing this week to set economic policy after the central bank cut interest rates last month by the most in 11 years. The slowdown is deepening after the economy grew 9 percent in the third quarter, the weakest pace in five years.

Taxes may fall to stimulate spending as the government targets a minimum 8 percent increase in gross domestic product next year and the creation of 10 million jobs, the state-run China Daily newspaper reported Dec. 9.

Policy makers may also roll out policies to support the stock market, according to Merrill Lynch & Co.

Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

Waning Demand

“Firms are reducing inventories and shutting capacity while demand is waning,” said Huang Yiping, chief Asia Pacific economist at Citigroup Inc. in Hong Kong. “This has created acute weakness in industrial activities that is likely to continue.”

About half of China’s toymakers have shut down this year, with 7,000 workers losing their jobs when Smart Union Group (Holdings) Ltd. closed in Guangdong province in October.

Sacked workers rioted at another toy factory last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”

The central bank has cut the key one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting lending by banks.

Policy makers will keep reducing rates, along with the amount of money that lenders are required to park with the central bank as reserves, said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Gains by the yuan against the dollar will stall at least through the first half of next year, he said.

The yuan’s biggest one-day decline in three years on Dec. 1. prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.

The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week.

Commerce Minister Chen Deming denied last week that China would rely on the currency to help exporters, saying that “the cause of the current problem with exports is shrinking demand, not problems with currencies.”

China’s currency has gained about 20 percent since a peg to the dollar was scrapped in 2005.

BLOOMBERG