Steep and sudden declines in China's imports and exports show the country's economic slowdown is entering a new and more serious phase -- exacerbating the global slump while challenging a generation of Chinese companies and workers used to steady double-digit gains in sales and salaries.
The surprising data add to concern over the outlook of one of the few major economies in the world that's still expanding, and make it even less likely China can offer significant support to growth elsewhere in the world.
China's Customs agency said Wednesday that November's exports fell 2.2% from a year earlier. That marks the first decline in exports since June 2001, and a sharp reversal from the 19.2% gain in October and a nearly 26% rise in 2007.
Perhaps even more worrying, imports fell 17.9% in November from a year earlier, after they rose 15.6% in October and more than 20% last year. That signals declining demand for components that would go into future exports, and weakness in China's domestic economy.
Chinese producers of low-end goods such as toys and textiles have been struggling all year. But now sales of higher-end machinery and electronics are declining as the U.S. economy has deteriorated sharply.
China is the third-largest export market for the U.S., and has been a major buyer of commodities. But its imports of iron ore fell 7.9% in November, while crude oil imports were down 1.8%.
China's leaders last month announced a 4 trillion yuan ($584 billion) stimulus package and on Wednesday wrapped up an annual economic-policy conference by reaffirming their determination to support growth by any means available. They have their work cut out to avoid a damaging downturn. Some economists think China could be entering a sustained period of falling export orders, with the U.S., European and Japanese economies all now contracting. The World Bank expects the volume of global trade to shrink in 2009 for the first time since 1982.
Most businesspeople in China 'didn't imagine that these events in the U.S. would affect them,' Li Qiang, chief statistician of the National Bureau of Statistics, said in an interview. 'For most of the last 18 years, the economy has been continually growing, so they've gotten used to it.'
In the coastal city of Yuyao, Ningbo Wanglong Group claims that years of rapid expansion have made it one of the world's largest producers of preservatives for food and feed. But export orders for the additives, sorbic acid and potassium sorbate, have declined rapidly since September.
'We've never experienced this before. We don't know what happened,' said Zhou Hong, a sales manager. He said shipments to distributors in the U.S. and other overseas markets have plunged by roughly 50% to 60% in recent months. The company hasn't yet laid off any of its 1,500 employees, but has had to halve production and offer clients discounts of around 50%.
'So far we don't know what else we can do,' Mr. Zhou said.
China's economy is slowing particularly sharply because the export decline is combining with slackening domestic demand. Housing sales have fallen sharply and prices are declining in most major cities. As a consequence, new construction has dried up, which saps demand for steel, cement and copper.
Consumers, spooked by the increasingly bad news, are holding off on other big purchases: Car sales dropped 10.3% from a year earlier in November, the third monthly decline this year.
Many economists are forecasting China's economic growth to slow to around 7.5% next year, which would be the lowest since 1999. Growth this year is likely to average just over 9%, ending five straight years of double-digit gains.
'The most striking real economic fact of the past several months is not continued U.S. economic weakness, but that China's economy has slowed much more quickly than anyone had forecast,' Australia's central bank Gov. Glenn Stevens said this week. He thinks it increasingly unlikely that China will achieve its traditional target of 8% economic growth next year, which Chinese officials insist is still possible.
The slowdown is translating into fewer jobs, and increasing strains between workers and employers. China doesn't publish reliable data on unemployment -- few economists take seriously the official jobless rate of 4% -- but there have been growing numbers of layoffs and factory closures. Hundreds of thousands of migrant workers have already returned to their hometowns to wait out the slowdown. Zhou Tianyong, an economist at the Central Party School, a Communist Party institute in Beijing, estimates that the actual unemployment rate this year is around 12% and could rise to 14% next year.
The slowdown is pushing many Chinese companies into unfamiliar territory. For most of Geely Group's short history as an auto maker its biggest challenge was figuring out ways to expand quickly enough to meet exploding demand from China's increasingly affluent middle class. Now Geely managers are negotiating an abrupt U-turn, making plans to scale back production and postponing spending on research and development.
Zhang Xiaodong, a company spokesman, said Geely, which first started selling its own brand cars in 2001, has suspended plans to start mass production of a sports car, originally set to start at the end of this year. Development of two large sedans has also been halted. Geely's sales were down 6% in October and up 1% for the first ten months of the year, after growing more than 40% in 2005 and 2006 and 7% last year.
Yale Zhang, a Shanghai-based auto analyst with CSM Worldwide, said China's auto makers 'are used to a high-growth environment. They don't know how to survive at a single-digit growth rate.' Rapid growth of the market has allowed even smaller companies to achieve economies of scale, but it will become much harder for them to compete as growth fades, he said.
Still, China is doing better than many smaller Asian economies that are even more driven by trade. Hong Kong Chief Executive Donald Tsang said this week that the Chinese territory, a trade and finance hub, won't be able to avoid a recession in 2009. South Korea's exports for November dropped 18%, and Taiwan's exports for the month plunged 23%, the sharpest falls in seven years for both. Both of those economies are now expected to shrink outright in 2009.
Although forecasting is especially tricky in the current climate, the worst-case scenarios economists now have for China involve a quarter or two of growth around 5% next year. That is far from the outright contractions typically associated with a recession. But it does looks like China is headed for what some economists call a 'growth recession': a period of weak growth and rising unemployment.
The general feeling is that things will get worse before they get better. Beijing's 4 trillion yuan stimulus package won't produce an immediate turnaround. 'There will be a time lag,' said Qu Hongbin, an economist for HSBC. 'I think we will see a very bad winter for the economy this year, but when spring is coming, this government spending spree will kick in.'
Although the slowdown is taking the sharpest toll on low-paid manufacturing workers, it's also spreading concern among prosperous white-collar families. Well-educated urbanites have been able to hop from job to job in recent years, extracting steep raises once a year or more. Average urban incomes are up 14.7% so far in 2008, the seventh straight year of double-digit gains. Those with the language skills to land jobs at foreign companies did even better -- something that may be changing with foreign investment contracting 36.5% in November.
Li Hua, a 31-year-old human resource executive with a Shanghai sports retailer, says she used to get calls from headhunters almost weekly. She changed jobs twice in the last few years, and has been in her present job for about five months. But in October, the job market started to change. Her own company canceled its recruitment plans, and a friend got laid off from a new job with little severance.
'Now what I'm thinking is to just work hard. No complaints, no asking for a raise,' said Ms. Li. 'We should all feel lucky we still have a job and are doing fine.'
Andrew Batson / Gordon Fairclough
