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The pain to come for Chinese exports

Aug 13, 2011
The pain to come for Chinese exports
By Olivia Chung

HONG KONG – A slowing global economy on the back of debt woes in the United States and Europe will hurt China’s exports in the long run – but not just yet, analysts and industry players say.

Evidence of robust growth in foreign demand for China’s goods came on August 10, with the General Administration of Customs (GAC) reporting exports surged 20.4% year-on-year to US$175.13 billion in July. Imports grew 22.9% to US$143.64 billion, giving China its biggest trade surplus for two-and-a-half years, reaching US$31.5 billion in July from $22.27 billion in June, the GAC said in its website.

“Given that most orders for the next few months have already been placed, it is unlikely that the downward trend in global economy will have a big impact on exports in the short term,” said Alistair Thornton, a Beijing-based China analyst at IHS Global Insight, who expects export growth to continue through the third quarter on overseas orders ahead of the Christmas shopping season.

Concerns that the global economy is headed for a double-dip recession that may wipe out gains made since the crash of 2008 and hurt Chinese exports intensified in markets this week. For every one percentage point fall in economic growth in the United States and European Union, China’s exports will decline seven percentage points, according to Deutsche Bank estimates.

Stanley Lau Chin-ho, deputy chairman of the Federation of Hong Kong Industries, said demand from the US will weaken after international ratings agency Standard & Poor’s downgraded US sovereign debt one notch from the highest AAA rating to AA+ on August 5. That will increases corporate borrowing costs and weakens consumer confidence, he said.

“Let alone rising costs, many of the association’s 3,000 member companies have been expressing their pessimistic views over the outlook of China’s export sector in the second half of the year mainly due to a slowing global economy,” Lau said.

However, since the third quarter is usually the busiest season, the impact of a slowing global economy will not be felt in the short term.

“The overseas buyers are very cautious and keep asking for lower factory gate prices. Some even delay payment and as a result Chinese exporters will suffer cash-flow problems. Such negative impacts would emerge near the end of the year,” Lau said

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