In accordance with the report by the Development Research Center of the State Council, China will become the main objective of trade protectionism, and this behavior will make the exporting environment worse in China.

The nation’s export sector saw a rapid growth since China joined WTO in 2001. The surplus trade helped the country gather $1.95 trillion in foreign exchange reserves, which ranked the first in the world. In 2008, the surplus trade reached 295.46 billion Yuan, due to this situation, many foreign countries started to adopt their trade protectionism measures.

A six-month ban on toy imports from China has been carried out by the Indian government on Jan 23. Meanwhile, Chinese government claimed that China would file a case at WTO against the ban to import Chinese fowls.

The Ministry of Commerce reported that China is still one of the countries that are under anti-dumping probes since 1995.

This report also said that US government’s ‘Buy America’ clause caused a rise of trade protectionism all around the world.

A study released on March 17th by the World Bank showed that 17 of the G20 group have launched trade-restricting measures since last November.

At the G20 summit that was held on November 15th, Leaders of G20 group countries agreed to avoid setting trade barriers, but, in contrast, up to 47 measures which restrict trade have been taken in those countries since the end of the meeting.

China’s commerce minister, Chen Deming, said that China would definitely say no to protectionism and would give some useful suggestions in trade talks held in Doha.

The report suggested that China still need to support the labor-intensive export sector because it could provide about 40 million job chances every year.

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China is considered by the global business community as an indispensable player in an eventual economic turnaround as multinational manufacturers are strengthening their commitment to China which is probably a vital base of operations for Asia.

Compared with 17 percent of the 108 multinational companies (MNCs) expressing interests in relocating their manufacturing plants outside of China last year, the figure declined to 10 percent this year, according to the survey, jointly conducted by the American Chamber of Commerce in Shanghai and management consulting firm Booz & Company.

The number of companies that concern over China losing its competitive edge to lower-cost countries such as India and Vietnam dropped by more than half.

Assumptions related to future business strategies for virtually every manufacturer operating in China has been changed by the global financial crisis. On the whole, multinational companies said they are suffering difficult times in China.

Companies were facing bigger challenges which included higher material and compensation costs as well as the appreciation of the yuan before the recession. But now declining rates of domestic growth, weaker demand for Chinese exports and tight credit are becoming more and more important problems.

Near half of the MNC manufacturers complained about suffering a fourth-quarter export decline of more than 10 percent year-on-year. Meanwhile 13 percent said they experienced sharp export shortfalls of 30-49 percent.

In spite of all the difficulties of the downturn, most MNCs said they were still confident with China’s efforts to position itself as a world-class manufacturing center.

At the same time, the economic recession has forced multinational manufacturing businesses to pay more attention to “how we manufacture” in China rather than the mass quantity of products they made here.

As China is continuing its way to become a higher-value global manufacturing center, nearly 25 percent of the respondents were promoting their production facilities in China with the best technologies they had, with the Chinese government sparing more efforts to improve industrial infrastructure.

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Wan Qingliang, Vice-Governor, said that the website www.gd218.org.cn will function as an effective tool for the businesses in Guangdong at the lunch ceremony. It will report the messages related to global markets and government trade policies as well.

The global financial crisis has exerted a great influence on Guangdong economy and its foreign trade. The government has taken some measures with to help the local companies overcome the global financial crisis. Among these measures, the opening of the website is just one of these measures, he added.

According to Wan, with the website, companies can apply for documents and licenses. They also can put forward advice and ask for help from the officials who are responsible for foreign trade in Guangdong Province.

The total of imports and exports amounted to 36.6 billion yuan (i.e. $5.3 billion) in January. It decreased by 31% compared to the same period last year, he said.

They are confronted with great challenges of foreign trade which they have never met before, he said.

Liang Yaowen, the director of the provincial foreign trade and economic cooperation department, said that the foreign trade of Guangdong is likely to decline in the first four months of this year, when he addressed at a banquet for trade officials.

Liang analyzed that many firms are buying fewer raw materials from foreign countries. Therefore, the sales of their own goods will have a worse prospect in the foreign market naturally.

Besides, some hi-tech companies, such as Fox-conn which is funded by Taiwan and Flextronics which is funded by Singapore, have reduced their businesses due to the global economic depression, he said.

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Customs said on its website that the steel export in China fell down to 59.23 million tons in 2008 whereas the export value has climbed up to $63.44 billion, with an increase of 43.8 percent year-on-year. While look back to the recent months, we can see that steel exports decreased to 1.91 million tons in January, dropping 40 percent year-on-year, and the import of iron ore 32.65 million tons, dropping 5 percent from December 2008.

Steel exported each month reached the summit of 7.68 million tons in August, but it declined to 2.95 million tons in November which is the lowest point since 2007, although there was a minor increase to 3.17 million tons in December.

As a result, Customs addressed their admonishing that this year would see no improvement in this sector.

According to statistics by foreign research organization, new orders would decline substantially as the result of the cut of global demand by more than 10 percent. It takes place even in China’s major markets. For example, it’s estimated that the demand in South Korea will drop by 9.5 percent while the United States by 11 percent, and Japan by over 30 percent. And the winter last year witnessed the beginning of dramatic drop of steel export orders in China.

Customs also warned the industry of the deteriorating trade conflicts against steel products that were made in China. That’s because some trade partners of the same line were anxious to safeguard their industries from the global financial recession. They may either evolve anti-dumping and countervailing cases against Chinese steel products, or upraise the import tariff.

It also added that the competitiveness was weakened after China was forced to revalue the yuan.

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Compared with the last year, the General Administration of Customs figures, exposed in February 11, fell 17.5 percent. Thus the 2.8 percent fall in December seems of little impact.

More dramatically, imports dropped down to 43.1 percent year-on-year.

There even occurred a rare decline in monthly foreign trade since the reforming and opening up 30 years ago. That’s the 29 percent year-on-year fall of the combined foreign trade in January.

It’s possible for the foreign trade to continue to drop in the more months to come since the global financial crisis is still clouded. It’s predicted by Su Chang, a macro-economic analyst with China Economic Business Monitor that foreign trade would decline by 10 percent in the first three month of this year. He said, “China’s year record may come to be negative, too. But due to the fall in prices of industrial materials the decline in imports would be substantial.”

One year ago, prices of primary goods which China mainly imports, stood on its historic peek, but now they have plummeted into the trough, which he added.

However, there was an exception last month. During the spring festival, the most important festival for Chinese, we had one week of holiday in January, one month earlier than that as usual. If taking the 5 fewer working days into consideration, it’s said that export actually had a6.8 percent year-on-year rise in January and a 4.6 increase if compared with December.

Economists also pointed out another problem – the worldwide deflationary cycle. There are mainly two reasons for the sharp drop in imports. One was the falling global prices (especially prices of crude oil and farm products). The other was the dropping demand for electronic components, which was a mirror of the retrogression of the country’s manufacturing industry.

Ting Lu, economist with Merrill Lynch in Hong Kong, said that there was no way to foresee the effect brought about by the Chinese New Year, and in a note to clients in the monthly trade figures he gave his suggestion that people should show their ignorance.

It’s said by the experts that China is not the worst among its neighboring countries. Jing Ulrich, analyst with JP Morgan, shows in his recent report that when export is sending a message of warning, the situation in China is much better than some neighboring economies which rely more on hi-tech sector. And, Jing Wang, chief economist of Morgan Stanley, also made his remark that China’s export structure is relatively stable in the region because of its diversity.

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An MIIT official said they are discussing the report but no conclusion has appeared. His team is waiting for industry figures from last year and will decide whether to propose the stimulus plan a few weeks after that.

It was reported by the Shanghai Securities News, the China Electrical Equipment Industrial Association is trying to persuade the government to cut taxes on lead-acid battery exports.

It is said that global economic recession has forced one third of Chinese battery exporters in Guangdong, Fujian and Zhejiang provinces to stop production. About half of Chinese battery exporters are said to be considering a move to foreign markets such as India and Vietnam where will cost less. The imminent move will probably lead to 200,000 layoffs.

However, the MIIT official said China’s battery industry is better than the reports. The export figures show that from September to November last year, China’s battery industry did not drop so much as the estimation.

Lead-acid batteries are mainly used in autos and motorcycles, the products of which have been cut down significantly by the global financial crisis.

MIIT figures show China’s battery exports increased 17.6 percent in the first 11 months of 2008. But the growth was 4 percentage points lower than that of the first 10 months.

Wang Zhengjie, general manager of Neata Battery Manufacture, a lead-acid battery company in Zhongshan, Guangdong province, said he has cut about 120 of his 350 employees this year to tackle with the shrinking demand. He expects the unfavorable market situation could help him surmount smaller competitors rather than the government providing any help.

China, the world’s largest battery producer, cancelled 15% export refund on tax in 2006 to damp down the country’s overheating passion on high energy-consuming enterprises investment. But experts forecast that the move, as well as RMB appreciation and increasing raw material prices, has forced Chinese battery manufacturers to suffer half more costs than their foreign competitors.

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Exports have dropped only very slightly, Ouyang said, about 30% products of her company cater to the domestic market, while 5% aims to Europe and the US, and the rest goes to Southeast Asia.

Shantou may have previously envied its Pearl River Delta cousins for their once-booming original equipment manufacturer (OEM) businesses that depend heavily on overseas clients.

But with global economic gloom shrouding the toy industry in Dongguan, another Guangdong toy-making hub, talk of widespread factory closures and retrenched workers heading back has left many Shantou businesses relieved for not casting their lot with the OEM sector.

Many factories in Shantou are facing hard time, Li said. The decrease of orders has also forced a number of toy factories in Chenghai to send their workers home early this winter.

As one of the three main toy-making bases in Guangdong, Shantou has more than 10,000 factories and about 120,000 workers in Chenghai. Based on the official statistics in the first 10 months, toys accounted for 9.9% of the city’s exports, which was a 33% increase year-on-year.

According to Chen Zhiwei, an official with the Chenghai district information office, many factories in the area have recently reduced or suspended production to minimize losses.

But it is unnecessary to confuse the normal fluctuation of the smaller firms with the direct impact of the global crisis, he added, the reasons that companies go bust could be various. It happens all the time.

Huawei Toys Crafts Co, a 3,000-worker enterprise with a 300-million-yuan ($43.8 million) annual output, also felt the impact of the crisis earlier.

A continuous appreciation of yuan during last month raised export prices. Chinese products involving scandals result in environmental, safety and manufacturing standards. Costs were also driven up by additional tests and certificates required of business.

To see part 2

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The CLSA China Purchasing Managers’ Index stood at a seasonally adjusted 41.2, compared with a record low of 40.9 in November, according to CLSA Asia Pacific Markets last Friday in an emailed statement. The index which is below 50 reflects a contraction.

Manufacturers in industries such as metals and toys are reducing production or closing down. Aluminum Corp of China Ltd, the nation’s biggest maker of the metal, and Yunnan Tin Co, the world’s largest producer of tin, cut output as prices fell.

Eric Fishwick, head of economic research at CLSA in Singapore said that Chinese manufacturing was very weak in December. “With five back-to-back PMIs signaling contraction, the manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession.”

The output index fell to a record low of 38.6 last month from 39.2 in November, while the measure of new orders rose to 37 from 36.1. The index of export orders jumped to 33.6 from 28.2, CLSA said.

The report said that Chinese manufacturers shrink with a high speed. An employment index which was tracked by CLSA showed that the index decreased for five consecutive months to 45.2 in December.

China’s economic growth reached the weakest pace in at least 15 years, which was only 5.5% last quarter, according to Shanghai-based Industrial Bank Co.

The recession of economy may make central bank keep cutting interest rates after five reductions in three months and as the government announced 4 trillion yuan ($586 billion) stimulus package in November.

A “flexible” monetary policy was pledged to continue by Central bank Governor Zhou Xiaochuan on Dec 31. Capital Economics Ltd forecasts the key one-year lending rate will fall by at least 81 basis points from 5.31 percent in the first half of this year.

Central bank Vice-Governor Yi Gang said on Dec 26 that a severe slowdown in industrial-output growth is mainly caused by companies running down excess inventory. That process won’t conclude until the end of the second quarter, Yi added.

Exports and imports both got huge impact and industrial output grew at the slowest pace in almost a decade. The government has announced the stimulus package, interest-rate cutting and reductions in export taxes to deal with the worsening slowdown

The yuan’s gains against the dollar have also stalled since mid-July. A weaker currency helps exporters by keeping down prices in overseas markets.

It is said that China need to boost consumption and prepare more measures to tackle thee crisis. The central bank reaffirmed a “moderately loose” monetary policy.

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However, some economists hold the perspectives that the financial tsunami is also an opportunities for domestic manufacturer to occupy the market, for the reason that the foreign opponents’ evacuation. Even if the optimists can never judge the situation only by status quo. As is known to all, without the competitive price and high quality, domestic manufacturers would never exceed the tradition famous brands. Therefore, not only the manufacturers of finished cars, but also the suppliers of the car parts should carry out some solutions to cope with the opportunities and challenges as well. The depression of the US big three car manufactures is double-edged sword for Chinese enterprises. Firstly, they should scheme the strategy to improve the quality of the products, in order to follow the steps of the main opponents overseas. Meanwhile, they have to provide the competitive and reasonable price for the consumers domestically. If they cannot take advantage of this situation, they would never achieve highly in this region. Moreover, the policy from central government absolutely plays an essential role in the development of the manufacturing fields.

All in all, the financial crisis brings more than Chinese people can imagine. It is the high time for Chinese economists, businessmen and the masses to confront any changes in daily life and try every method to maintain sustained economy growth.

As Customs authorities said, exports decreased to $114.99 billion by 2.2 percent in November, and it was the first monthly decline in 7 years. What’s more according to the Ministry of Commence, FDI dropped to $5.3 billion and fell 36.52 percent year-on-year.
However, the trade surplus of China soared to a record $40.09billion in November because import also decreased by 17.9 percent year-on year although increased by 15.6 percent in October.

The consumer price index (CPI), the main index to measure inflation, is expected to fall. In October the CPI, moderated to an 18-month low of 4 percent year-on-year. It had peaked to 8.7 percent in February.

And the producer price index (PPI) rose 2 percent year-on-year, the lowest since April 2006. Wholesale inflation eased to a 31-month low, dues to a fall in commodity prices because of rising inventory and weak demand.

Analysts said weak business sentiment has pushed up inventories of raw materials nationally, and it in turn depressed factory gate prices.

Inflation weakened for the most part owing to the recent decline in commodity prices, including those of crude oil and non-ferrous metals.

The wholesale inflation is in all probability to decline further in the coming months because the depression in global oil and commodity prices haven’t been fully taken into account in the latest data.

Business and consumer demand is also expected to weaken further in the short term, as the effect of government’s $586-billion stimulus package needs time and is expected to take a few months.

The analysts said that the exports and imports figures indicate domestic companies are wary of importing raw materials and investing anew because of the economic downturn.
“China’s exports and imports growth collapsed in November … showing that demand is simply disappearing,” said Wang Tao, an economist with UBS Securities. “We expect more negative growth in exports in the coming months, given the deteriorating global economic outlook.”

Jing Ulrich, JP Morgan chairman for China Equities, said: “It has become all the more important for the government to take steps to rebalance the drivers of growth.” “And with few options left to revive exports, the government is understandably focusing on boosting domestic demand and pushing forward infrastructure initiatives to absorb some of the migrant workforce.”

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