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Source: www.asiaecon.org |

GLOBAL ECONOMIC RECESSION AFFECTS CHINA'S EXPORTS


China, which overtook the United States to become the world’s second largest merchandise exporter in 2007 behind the European Union (EU), suffered the first contraction in its exports in more than seven years last November.


China, which overtook the United States to become the world’s second largest merchandise exporter in 2007 behind the European Union (EU), suffered the first contraction in its exports in more than seven years last November. Exports fell 2.2% from the year earlier according to the General Administration of Customs of China. Many analysts had predicted that the monthly trade figures would show China’s exports slowing along with the global economy, but few had expected a decrease. Indications are that the December data will be even worse.

The global economic recession is strongly affecting the Chinese economy, the fourth largest in the world, since for the first time in the last three decades the three biggest buyers of China’s exports -USA, Europe and Japan- are all suffering from the financial crisis. In fact, the International Monetary Fund has predicted the first simultaneous recession (negative growth) in the U.S., Japan and Euro region in the post-World War II era. The loss of purchasing power in these three regions has caused China’s exports to decrease to $114.99 billion in November. This means that the almost endless demand for inexpensive goods made in the world’s most populous country has plunged.

China’s economic dynamism of the last 20 years has been powered by exports. However, now China’s falling exports are contributing to a significant decline in GDP. China’s net exports (exports minus imports) contributed to one-third of its GDP growth in 2007, showing that the Chinese economy is heavily dependent on global trade. China, which grew 11.9 percent in 2007, is now expected to slow to 7 percent this year and 6.6 percent in 2010-according to Morgan Stanley.

Of course, this decrease in exports will have several implications. First, and most important, it will result in a massive increase in unemployment. The Chinese government estimates that the foreign trade sector employs directly more than 80 million people. Although China’s official urban unemployment rate is 4 per cent, there is still substantial unemployment and underemployment in rural areas. Thousands of factories have already been closed,  forcing millions of migrant workers to return to the countryside. Thus, the economic problems could be translated also into a social one putting added pressure on the Chinese government. Statements by Chinese leaders have already shown that they are worried about the social impact of a sharp downturn.

China has taken a number of steps to respond to the global financial crisis such as implementing a new economic stimulus package, including an acceleration of construction projects, new export tax rebates and tax and interest rate cuts. Also, State banks are being directed to lend more to exporters, particularly to small and midsized operations.

If China has learned one thing through this crisis it is that it has to lower its dependency on exports. Although a shifting toward a greater reliance on domestic demand will not be easy in the nearby future, it will be indispensable. Besides, taking into account that Chinese households have one of the world’s highest savings rates and Chinese families already receive significant government help with education costs, medical care and retirement.

Source: www.AsiaEcon.org

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Source: www.asiaecon.org |


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