China's trade surplus still stands at an unprecedented figure, thanks largely to imports declining more rapidly than exports.

December figures showed that China's overseas trade continued the decline that started in November, an indication of the deteriorating external economic environment. Analysts say the downward trend is unlikely to stop during the first quarter of 2009.

Figures released yesterday by the China General Administration of Customs showed the country's trade volume last December was US$188.33 billion, a 11.1 percent decline from December 2007, made up of US$111.16 billion in exports and US$72.18 billion in imports, respectively a 2.8 percent and 21.3 percent decline. Compared with November, exports went up by 0.6 percent and imports 3.4 percent.

December's trade surplus of US$38.98 billion, was under the historic high of US$40.09 billion showing that upward momentum in the trade surplus may have come to a halt. Although the trade surplus is still near its peak figure, it's decreasing imports rather than increasing exports that are contributed to the ostensible prosperity, and this is a focus of concern.

"The data are what we expected. After all, the global economic scene is gloomy so our export-oriented enterprises are getting fewer orders", China Business News was told yesterday by an expert at the China Academy of International Trade and Economic Cooperation (CAITEC), an agency affiliated to China's Ministry of Commerce.

Processing trade struggling to survive

Chen Yingjia, an economist with Moody's Investors Service, said it is difficult to see the bottom of the country's export decline, since the economy is still on the downturn in Europe and North America. Chen Yingjia said the declines seen so far don't fully reflect the worsened state of the international market, because of the time lag between order placement and actual exports. Chen said exports will continue to slide in the first quarter of this year.

But imports are a cause for more concern. Shrinking international demand for China's goods is reducing China's raw material imports, and plunging raw materials prices are contributing to a yet steeper decline.

Sanlian Plastic Product Company in Sanshui City, Guangdong Province is an export-oriented toy manufacturer. Company manager Chen Guojian told the reporter that their exports fell 30 percent in 2008.

Exports from the processing trade have been the backbone of Guangdong's business accounting for about 65 percent of the province's entire export volume. A business model in which manufacturers import all raw materials and export all outputs is obviously vulnerable to a global downturn. Manufacturers of textiles, toys, shoes and electronic products are all reporting decreasing business.

There are some hopeful signs; prices of exported goods have held up, despite decreased demand. From June to December 2008, the monthly average price of exported goods maintained a 16-19 percent increase over the same period in the previous year, and the December figure was 16.3 percent

The CAITEC expert thinks the price rise results from the modified tax policies. Therefore, the exporters will be more flexible in their pricing strategy which in turn will increase their business margin.

The fall in exports won't go too far

The double digit decrease in imports has been the focus of attention and whether it foreshadows a year-long slide is still too early to say.

Chen Yingjia said the double digit decrease indicates that exports in the first months of 2009 will be weak, because the processing trade relies on the import of materials.

Figures released by the US Department of Commerce on January 13 showed the US trade deficit with China had reached its lowest point in the past five months, down from US$27.9 billion in October to US$23.06 billion, indicating China's exports to US are still falling.

Merrill Lynch economist Lu Ting agrees with the idea, saying China's exports will decline in the next two months but the slide won't go too far, given that China's export business is more flexible than those of Taiwan and South Korea. China generally exports cheaper, low added value products favored by overseas customers.

However, despite their price advantage, Chinese exporters are still expecting more support from the government.

A manager of Dongguan Xinsilu (New Silk Way) Company said that private businesses in the processing trade find it difficult to get bank loans. He is hoping the government will increase its support to the industry.

But with many favorable policies already enacted, such as export tax rebates, and a stable exchange rate, the government has little further room for maneuver. A thorough amelioration of China's export situation may have to wait for an improvement in the global economy.

(China.org.cn by Maverick Chen, January 15, 2009)