A man rides a bicycle past containers at a port in Shanghai on Dec. 10, 2008
The Chinese leadership's annual work meeting on economic policy concluded Wednesday with a note of triumph. The country's steady growth has "demonstrated the overall national strength China had built over the past three decades, proved the correctness of socialism with Chinese characteristics and justified the advantage of a socialist institution in pooling various forces to realize big feats," the state-run Xinhua news service declared. See Top 10 Best Business Deals.
But the latest trade data show that sustaining China's economic boom over the next year will prove arduous if not impossible. Last month China's exports, a major driver of the world's fourth-largest economy, fell by 2.2% compared with November, 2006. The result marked the country's first decline in exports in seven years and was a sharp reversal of the double-digit growth rates manufacturers have typically posted in recent years. The drop was "a shock figure," says Ben Simpfendorfer, the Hong Kong-based chief China economist for the Royal Bank of Scotland. "I had expected exports to collapse in the final few months but not to this extent. There really isn't a precedent. It underscores the magnitude of the global slowdown and fact that it's spilling into China."
Simpfendorfer says he believes the 2.2% contraction — exports grew by 19% in October — was caused by a lack of overseas consumer demand for Chinese manufactured electronics. Electronics are shipped closer to the Christmas rush period, he notes, unlike toys and cheaper goods that are sent out months in advance. The fall indicates that weak markets in the U.S. and Europe aren't the only culprit. "To get a decline of this magnitude does suggest that this is a global story," he says.
Factory closures in the manufacturing regions of southern China are now a daily event, and local governments have stepped in to pay the wages of some workers left jobless after bosses have fled. Courts in the Guangdong province toy hub of Dongguan are reportedly working without days off to handle the crush of bankruptcies and unpaid wage cases. Demonstrations by terminated workers have spread fears of economic related social unrest, a key concern for the central government.
In recent weeks Chinese officials have suggested that the immediate picture for the country could be bleak. "In this coming period, we will starkly confront the effects of the sustained deepening of the international financial crisis and pressure as global economic growth clearly slows," Chinese President Hu Jintao acknowledged last month.
After growing at 11.4% last year, the Chinese economy expanded at 9% in the third quarter of 2008. The government hopes to maintain GDP growth of 8% or above next year. If growth falls below that level unemployment could reach destabilizing levels. In the official press, the phrase bao ba, or "protect eight," has now become a mantra. Last month the World Bank lowered its GDP growth estimate for China to 7.5% in 2009.
With export markets looking weak for the foreseeable future, China's leaders are placing their hope on domestic consumption. In November they announced a $586 billion stimulus package that included massive road-building projects and funding for reconstruction efforts in the earthquake-ravaged province of Sichuan. But questions remain about how much of that funding was taken from already existing projects, and how much will be dependent on provinces and state-run companies boosting their spending.
There are some positive signs, says Simpfendorfer, like stronger housing sales in early December and indications of growing steel production. But any economic recovery in China is likely to take place in the second half of next year, while during the first six months of 2009 growth could plunge to 5%. For most of the rest of the world that type of performance would be a dream. But for China it would be painful. "The data will look ugly for the first half of next year feel," he says. "For many it will feel like a recession. For the average worker it will feel like a recession. But the foundation for recovery in the second half is solid and the outlook is promising."