China exports: Chinese economy’s export pillar shows cracks from global slowdown – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/trade/exports/insights/chinese-economys-export-pillar-shows-cracks-from-global-slowdown/articleshow/94236918.cms

Synopsis

Alarm bells sounded for China’s $18 trillion economy when trade data last week showed export growth well short of expectations and slowing for the first time in four months.

BEIJING: China‘s exporters – the last reliable pillar of the world’s second-largest economy as it struggled with the pandemic, weak consumption and a property crisis – are warning of hard times ahead as softer overseas markets force them to shed workers, shift to lower-value goods and even rent out their factories.

Alarm bells sounded for China’s $18 trillion economy when trade data last week showed export growth well short of expectations and slowing for the first time in four months.

Those alarms are echoing in workshops across eastern and southern China’s manufacturing hubs, in industries from machinery parts and textiles to high-tech home appliances, where businesses are scaling back while export orders dry up.

“It is very likely China’s exports will slow further or even contract in the coming months, as leading economic indicators point to a global growth slowdown or even recession,” said Nie Wen, a Shanghai-based economist at Hwabao Trust.

Exports are vital to China more than ever, with all other pillars of its economy on shaky ground. Nie estimates exports will account for 30-40% of China’s GDP growth this year, up from 20% last year, even as outbound shipments slow.

“We had no export orders in the first eight months at all,” said Yang Bingben, 35, whose company makes industrial-use valves in eastern China’s export and manufacturing hub of Wenzhou.

He has let go all but 17 of his 150 workers and rented out most of his 7,500-square-meter (80,730 square foot) plant.

He sees little hope for the fourth quarter, typically his busiest season, and expects sales this year to drop 50-65% from last year, with the stalling domestic economy unable to take up any slack from the slump in exports.

To support the sector, export tax rebates have been expanded, and a cabinet meeting chaired by Premier Li Keqiang on Tuesday pledged support for exporters and importers to secure orders, expand markets and improve the efficiency of port operations and logistics.

RELIANCE ON EXPORTS
China over the years has moved to ease its economy’s reliance on exports for growth, and reduce its exposure to global factors beyond its control, while some low-cost manufacturing has been shifting to other countries such as Vietnam as China grows richer and its costs rise.

In the five years before the pandemic, from 2014 to 2019, the share of exports in China’s GDP shrank to 18.4% from 23.5%, according to World Bank figures.

But that share edged back up with the emergence of COVID-19, reaching 20% last year, in part as locked-down, home-bound consumers worldwide snapped up China’s electronics and household goods. That also helped to buoy China’s overall economic growth.

The pandemic has come back to bite China this year, however. Its strict efforts to contain domestic COVID outbreaks led to lockdowns that disrupted supply chains and shipping.

But much more ominous for exporters, they say, has been the slowdown in overseas demand, as the pandemic’s fallout and the Ukraine conflict fuel inflation and tighter monetary policies that are depressing global growth.

“Sliding demand for robot vacuum cleaners in Europe is beyond our expectation this year, with customers placing fewer orders and unwilling to buy expensive products,” said Qi Yong, a Shenzhen-based exporter of smart home electronics.

“Compared with 2020 and 2021, this year is the harder one, full of unprecedented hardship,” he said. While shipments picked up this month in the run-up to Christmas, he said, sales may still drop 20% in the third quarter from a year earlier.

He has cut 30% of his staff, to around 200, and may lay off more workers if business conditions require it.

These retrenchments put further pressure on policymakers searching for new sources of growth in an economy burdened by a year-long property slump and disruptions from Beijing’s zero-COVID policy.

Chinese companies involved in exporting and importing goods and services employ one-fifth of China’s workforce, supplying 180 million jobs.

Some exporters are adjusting their operations in response to the slump by producing cheaper goods, but this too will eat into revenue.

Miao Yujie, who runs an export company in eastern China’s Hangzhou, said he has started to use cheaper raw materials and to produce lower-value electronics goods and clothing that would appeal to inflation-wary, price-conscious consumers.

“There will be a big drop in exports in the second half of the year,” Miao said.

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