The job losses, in turn, could cause further worries about social stability as millions of unemployed migrant workers return home to interior provinces.
Train stations across China are already mobbed with workers heading home early for the Chinese New Year holiday, which does not start until the end of next week.
Millions of workers have lost their jobs, according to Chinese officials. Others have been given extended furloughs by their employers because there is little work for them. Some workers have even resigned from their jobs early so as to collect their paychecks before an expected wave of bankruptcies in the manufacturing sector over the holidays.
Measured in dollars, exports were 2.8 percent lower in December than a year earlier, while imports were down 21.3 percent, according to figures released Tuesday by the Chinese customs agency.
The decline in exports followed a drop of 2.2 percent in November, and was the steepest since April 1999. The Chinese trade surplus narrowed slightly, to $39 billion from $40 billion in November.
Although China releases its trade figures in dollars, the economic effect of falling exports on the Chinese economy is best seen by converting the figures into the Chinese currency, the yuan. Exports were down 9 percent from a year earlier in yuan - a jolting deceleration for a country where exports were still growing at an annual pace of nearly 30 percent in the summer of 2007.
Guangdong Province, adjacent to Hong Kong and accounting for nearly a third of Chinese exports, has suffered the brunt of the downturn.
Huang Longyun, vice governor of the province, said last week that 62,400 companies and branches of companies closed last year, up 8.2 percent from the previous year, with 600,000 migrant workers leaving the province because they could no longer find work.
Hong Kong business leaders say that the job losses and factory closings are even worse, with up to one-sixth of Hong Kong-owned factories in Guangdong already closed or likely to close soon, with the loss of more than a million jobs, not counting layoffs at factories owned by mainland businesses.
The slowdown mainly reflects slumping demand in the two biggest Chinese export markets, the European Union followed by the United States. The even steeper decline in imports shows that China is benefiting from lower prices for oil and other commodities but also suggests that many exporters have cut back purchases of imported components in anticipation of continued weakness in their sales abroad.
A lack of trade finance has also hurt exports. Chinese suppliers have become more wary of shipping goods with a promise from U.S. retailers and other overseas buyers that they will wire payments later.
Exporters are increasingly demanding that overseas buyers obtain letters of credit from banks, ensuring that the bank will pay for the goods if the buyer goes bankrupt before making payment.
But with liquidity still tight in financial markets, banks are charging more for letters of credit, with annualized interest rates that can reach 20 percent for troubled companies in troubled industries, said Richard Linebaugh, senior vice president for Asia treasury products at Bank of America.
"The pricing is changing on almost a daily basis," Linebaugh said in an interview.
Jing Ulrich, chairwoman of China equities at JPMorgan, predicted in a research note that Chinese exports would continue to shrink in the first few months of this year compared to a year earlier and would show no growth for all of 2009 when compared with 2008.
"Despite potential tax cuts and stimulus measures in key overseas markets, the outlook for global consumption remains bleak," she said.
The Shanghai stock exchange closed about 2 percent lower Tuesday as investors responded to an overnight drop on Wall Street as well as the weak Chinese export performance.
Many Chinese companies are worried that their export revenue could fall further this year because Christmas sales were weak for Western retailers.
"The department stores are clearing their inventories before ordering more," said Cliff Cheung, the director of Kid's Toy (HK), which manufactures paint sets and other crafts for children at a factory in Dongguan, China.
The trade figures released Tuesday were a flash estimate for December from the Chinese government, with no details. Previously released figures for November showed that consumer electronics and steel have been particularly hard hit, with exports of television sets falling by almost half compared with a year earlier and steel exports down by a fifth.
The customs agency provided limited data for exports by destination.
Exports to the European Union, China's largest trading partner, fell 3.5 percent in December compared to a year earlier, while exports to the United States, China's second-largest trading partner, dropped 4.1 percent.
Within Asia, Chinese exports to India fell 1.5 percent and shipments to Indonesia plunged 12.1 percent; only Japan was up, by an anemic 2.4 percent.
"This suggests that the decline in China's exports was driven by widespread weakness in global demand," Mingchun Sun, a China economist at Nomura International, wrote in a research note Tuesday. "As such, as long as the global economy remains sluggish, China's export growth is unlikely to rebound quickly."
