Faltering exports put a dent in the industries of steel, machinery, textile and light industry in China as the global demand contracted because of the deepening financial crisis. Analysts said these sectors should shift focus on domestic demand.

Domestic demand expansion urged in 4 sectors as exports falter [CFP]

China's exports, a main driver for its economic growth, recorded a year-on-year 2.2 percent drop in November. It fell for the first time in seven years because of the economic downturn.

March was the fifth straight month that exports fell, posting a 17.1 percent drop from a year earlier.

To counter further slowdown, China rolled out plans to revive the economy. Analysts said enterprises in the four sectors should look to domestic demand for bigger contribution to its economy.

Steel industry

China's steel industry was one of the worst hit by the financial crisis as demand shrank sharply. Global steel prices plunged since October of last year, which helped push Chinese steel mills into the red.

In the first quarter, the domestic steel market was still gloomy, with steel prices close to the level in 1994. Losses continue to haunt the sector.

Wu Xichun, honorary president of China Iron and Steel Association (CISA), blamed the waning demand and overcapacity for the slump in the steel market.

As an important consumer, the country's real estate sector slid into slack. The area for newly built houses in the first quarter tumbled 16.2 percent to 201 million square meters.

Dim exports added to the woe. China exported 5.14 million tonnes of steel in the first quarter, down 54.9 percent from a year ago.

China's steel industry was one of the worst hit by the financial crisis as demand shrank sharply. [CFP]

Growing protectionism made the situation worse. Last week the European Union decided to impose anti-dumping duties on seamless steel imported from China.

CISA secretary-general Shan Shanghua forecasted China's exports would tumble 80 percent in 2009.

To sustain exports, China raised export rebate for 23 types of steel products starting April 1. However, analysts said the move had limited effect as the global demand was weakening. The development of the steel industry should instead rely on domestic demand.

Some sectors showed signs of recovery as the government set to boost domestic demand.

In March, automakers produced 1.1 million vehicles, up 5.55 percent year on year, according to the China Association of Automobile Manufacturers. First-quarter sales rose 3.88 percent to 2.68 million units, and production totaled 2.57 million units, up 1.91 percent.

The association said sales were buoyed by government stimulus policies to halve the purchase tax on passenger cars to five percent for models with engines of less than 1.6 liters.

In the first quarter, the area of commercial houses sold rose 8.2 percent to 113 million square meters. Analysts said the rise in sales was mainly driven by surging credit and by stimulus policies, such as tax cuts.

However, overcapacity of the steel industry in China held back steel prices from a rebound. China's crude steel capacity reached 660 million tonnes at the end of 2008, exceeding the output of 500 million tonnes for the whole year.

China plans to cap its crude steel output at 460 million tonnes in 2009, down 8 percent year on year.

Analysts said the steel industry would not see a turnaround until mills limit their output by eliminating outdated capacity.