Impact of export slump on GDP growth downplayed

• Source: Global Times
• [01:59 August 12 2009]
• Comments

By Kang Juan

Exports are not likely to form the backbone of economic growth this year, economists said after the government announced yesterday that exports continued to decline in July, year-on-year, despite a rise in economic growth nationwide.

Exports fell 23 percent last month from a year earlier, to $105.42 billion, widening from a 21.4 percent drop in the previous month, the General Administration of Customs reported yesterday. Imports fell 14.9 percent to $94.79 billion, worse than June’s 13.2 percent decline.

“The grave international environment has affected our exports,” said Li Xiaochao, a spokesman for the National Bureau of Statistics.

On a positive note, exports and imports in July rose 10.4 and 8.7 percent, respectively, since June, the fifth-straight month they increased.

The latest figures indicate that the country’s import and export sectors were in line with the recoveries of the US and European economies, according to Tian Yun, vice president of the China Macro Economics Institute

“Demand for Chinese exports in major world markets has begun to rebound. Recovery is slow, but at least it won’t get worse from here,” Tian told the Global Times.

Mei Xinyu, a trade expert with the Ministry of Commerce, however, speculated that the export level isn’t likely to return to pre-crisis levels and downplayed the impact of imports and exports on gross domestic product (GDP) growth.

“Turbulence in overseas demand and the global economy does not mean instability for the overall Chinese economy. Net exports of goods and services were not as strong as many would have expected in their role of driving China’s growth,” Mei said.

China’s GDP grew 7.1 percent in the first half from a year earlier, with year-on-year growth of 7.9 percent in the second quarter, close to the government’s target rate of 8 percent.

 The contribution by net exports of goods and services to the country’s economic growth this year is expected to be negligible, continuing its downward trend in recent years, Mei said, adding that the figure for last year was just 9.2 percent.

“Potential new growth areas include investment and consumption driven by new technology,” he said.

That thinking was echoed by Tian, who downplayed the significance of any short-term fluctuation in the numbers.

“We have to direct more of our attention to the shift of our growth pattern and the reform of economic institutions. Otherwise, the effort to maintain an 8 percent growth rate is just meaningless,” Tian said. “If people can’t share the benefit of development, any growth rate would become meaningless.”

Mei warned that the government should rein in attempts by interest groups to carve up the stimulus package in the practice of expansionary monetary and fiscal policies.

In fact, the government and banks have moved to avert bad debt and bubbles in stocks and property. According to the central bank’s July data, new loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of June’s level, the lowest since November, when the 4-trillion-yuan stimulus package was announced.

Tian Yaling, an economist with the Institute of International Finance at the Bank of China, however, said the plunge in year-on-year export data shows that the global economy is highly unstable, which will lead to fluctuations in the nation’s economic recovery.

“We shouldn’t be too optimistic about the GDP growth earlier this year, as it was driven mainly by government investments,” Tian said.

Bank lending in the first half hit $1.1 trillion, and investments in urban fixed assets – a measure of government spending on plants and infrastructure – for the first seven months rose 32.9 percent, year on year.

Amid slumping exports and restricted domestic demand, Premier Wen Jiabao reaffirmed August 9 that China will adhere to moderately loose monetary and proactive fiscal policies.

Central bank governor Zhou Xiaochuan said July 28 that China will wait for the US to pull back on its stimulus measures before following suit.

Zhang Han and Qiu Wei contributed to this story