Slowing exports in China is pushing many low-cost manufacturers out of business and forcing others to either merge or restructure.

Although the process may seem painful, especially at a time of tightening bank credit, economists and industry experts say it can help the economy achieve a more balanced, and therefore, more sustainable growth in the longer term.

"The slowdown in export growth may mount pressure on the industrial sector to expedite its restructuring, with more emphasis on quality and marketing," says Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. This, he says, would represent a slow but significant shift in focus of China's massive industrial machine from exports to domestic sales.

"Of course, China could move toward a balanced economic growth without a slowdown in exports as well, but the process could take much longer," Mei adds.

Growth of merchandise exports in the first six months of this year dropped by 5.7 percentage points from a year earlier to 21.9 percent, latest trade figures show. Total imports of goods in the first half, by contrast, jumped 30.6 percent, up 12.4 percentage points from a year earlier, narrowing the nation's trade surplus by 11.8 percent to $111.9 billion.

Despite moderate export growth, China's GDP growth is still largely driven by overseas shipment. Economists and experts say an excessively heavy reliance on exports to fuel economic growth is unsustainable because a rapidly expanding trade surplus could not only increase trade frictions with importing countries but also requires constant government intervention to moderate the expansion of domestic money supply and, more importantly, bank credit.

Mei and other economists say it is high time the domestic industry upgraded and moved up the value chain to high-profit segments. This, they say, can only be accomplished by developing an internal market large enough for domestic enterprises to establish a track record of quality in design and manufacturing.

Economists say that after many years of persistent increase in exports, the prospect of the overseas marketplace expanding even further is seriously constricted, especially at a time of declining global demand. Instead of increasing export volume, Chinese enterprises should make greater efforts to narrow the gap between the prices of exports from China and retail prices in the global markets by adding more value to the traditionally low-cost goods, experts say.

"For a long time, we have achieved export growth by increasing volume rather than value," says Mei. "But the real way to sustain exporters' growth is to improve production efficiency and profit margins, which will, in turn, add greater value to the products."

Mei suggests exporters establish their own brands and develop high-value-added products to gain international competitiveness and increase their capabilities to withstand risks resulting from uncertainties in international markets. "Export enterprises need to move up the value chain by establishing their own brands, marketing, research and development capacity and distribution networks."