China has made the stabilization of exports a policy priority as factory closures cause job losses and social unrest in the lead up to a handover of power in the ruling Communist Party later this year.
Chinese Premier Wen Jiabao said the third quarter would be “a critical period for China to realize the year's export growth target and we should take targeted steps to stabilize growth," according to state news agencies.
Minsters have already cut interest rates and tried to stimulate the economy through state-funded infrastructure projects. State loans and tax cuts for exporters are now anticipated, and Wen also called for faster payment of export tax rebates, reduced fees for inspections and greater use of export credit insurance.
Growth so far is some way short of the 2012 trade growth target of 10 percent, a figure itself far below the growth rate of 20 percent achieved in 2011.
After growth of more than 10 percent in June, export growth fell to 1 percent in July. In the first seven months of the year, exports and imports were up 7.8 percent and 6.4 percent year-over-year, respectively.
Forward indicators are not offering much scope for optimism. The ‘new exports orders’ sub-index for the official PMI sank to 46.6 in July, pointing to a major contraction. Early indicators for August manufacturing activity have also been poor.
“This confirms that the strong export numbers in May and June were, as expected, complete anomalies,” said Xianfang Ren, an analyst with IHS Global Insight.
“The export sector has returned to a sharp downward trajectory, with major export markets all facing significant headwinds,” she said.
Ren said the downturn in exports was reducing the prospect of the Chinese economy making a rapid recovery.
“With the export sector losing speed faster than expected, the government’s current investment stimulus plan looks woefully inadequate,” she said.
“This isn’t a 2008 collapse, but it’s not worth testing how close the economy can get,” Ren said. “The government is likely to respond by ramping-up its stimulus efforts, with both monetary and fiscal guns firing.”
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