China Numbers Add Up To New Risks

The Age

Friday July 11, 2008

John Garnaut

CHINESE export growth has slowed to its lowest rate in at least five years, raising new risks for the world economy.

Export volumes grew just 7% in the year to June - down from sustained growth rates above 20% before the middle of last year - and they are likely to fall further as key markets in the US and Europe deteriorate further.

"It's signalling that by the end of the year we'll have zero export growth," said Stephen Green, an economist with Standard Chartered bank in Shanghai.

China's GDP grew 11.9% last year, of which net exports accounted for 2.6 percentage points.

Yesterday's trade figures show the volume of Chinese imports rose 9% from a year earlier. But the "real" trade figures mask a larger income shock caused by China's rapidly deteriorating terms of trade.

Exports for the year to June rose 17.6% in US dollar values while imports soared 31%, as China began to cover huge new price rises for iron ore as well as other imported commodities such as oil.

"China's terms of trade are deteriorating quite rapidly, it's quite the opposite of Australia," said Citigroup's chief Asia economist, Huang Yiping. "You just shift the denominator and the numerator for Australia."

Li Jian, an economist with the Academy of International Trade and Economic Co-operation under the Ministry of Commerce, said China's small and middle-sized enterprises were hurting.

"The accelerated appreciation of the yuan, a shortage of funds, continued price rises of raw materials and labour cost increases have forced more and more enterprises into financial loss or bankruptcy," he told Xinhua news agency.

But investment is strong, consumer spending is rising and many experts believe the export slowdown is helping to rebalance the economy for more sustainable growth.

"The trade surplus reached about 11% of GDP last year - it had to adjust," said Peking University's Song Guoqing, one of China's most respected economists.

"There is some probability that the economy will slow too quickly, but also that inflation will persist for some time. That suggests to me that policy is just about right."

China's huge monthly trade surplus fell to $US21.4 billion ($A22.45billion) in the month and $US58.1 billion for the June quarter - down 11.9% from a year earlier.

Leaked inflation numbers suggest consumer prices rose 7.1% in the year to June, down from a peak of 8.7%. Food prices appear to have peaked.

Next week's GDP figures are likely to show reported growth has slowed to about 10%.

© 2008 The Age

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