Is Chinas export engine slowly restarting?

A series of positive economic indicators has inspired confidence in a possible recovery for China's import-export business, which scraped bottom after a global financial crisis struck last year.

Import and export data released by the General Administration of Customs in July showed foreign trade gradually heating up again. Statistics pointed to a business rebound in each of five consecutive months.

In addition, the Ministry of Communications recently documented a rapid increase in shipping traffic at China's major harbors. On top of that, according to data released August 24 by the World Trade Organization, China surpassed Germany in the first half of the year to become the world's largest exporter.

These figures suggest foreign trade, China's most important engine for economic growth, has indeed bottomed out. Exports seem to have turned the corner on a road to post-crisis recovery.

But do the nation's exporters agree? To answer that question, Caijing reporters recently visited key export manufacturing areas along the nation's east coast, from the Shandong Peninsula to the Yangtze River Delta and as far south as the Pearl River Delta. They found companies from textile makers to boiler manufacturers struggling to survive – and many still waiting to turn the corner.

Mixed Bag

The journey began in Jiaozhu, the largest export town in Shandong Province. Jiaozhu's economy officially posted a 5 percent increase in exports year-on-year during the first quarter 2009, at a time when exports nationwide were plunging. But by the second quarter, the statistics confirmed that local business had slumped.
 
 
Wang Jian, bureau chief at the Foreign Enterprises Administration in Jiaozhou, explained the statistical shift by saying first quarter trade figures reflected unfinished orders left from 2008, while new orders for 2009 were included in the second quarter data.

Down the coast in Zhejiang Province, the situation is just as harsh. According to a survey of major trade companies in late June by the provincial Office of Commerce, 64 percent of Zhejiang exporters reported fewer orders, 18.5 percent saw no change, and 18 percent said orders had increased from last year's levels. Those results reflected only a slight improvement since a similar survey conducted in May.

A different picture emerged farther south in the Pearl Delta city of Dongguan, Guangdong Province, where waves of migrant factory workers left several months ago.

Wen Zhimou, deputy secretary of the Taiwanese Investment Enterprises Association of Dongguan, said it's hard to say whether exports have substantially turned for the better in the Pearl Delta in recent months. He said many company orders follow seasonal patterns, and not all manufacturers can expect a stable flow of orders.

But Wen said the chamber's membership roles have shrunk. Of the 3,100 Taiwanese-investor companies registered in Dongguan, up to 700 have not paid their membership fees, which could mean they've suspended operations.

A Dongguan official who asked to remain anonymous said a survey found that 2 million to 3 million migrant workers left the city during the Spring Festival last January, and never returned. A resulting shortage of labor made some people believe that the export economy is picking up again. 

Generally along the entire coastline, foreign customer orders have started to improve for labor-intensive, manufactured goods such as clothes and shoes, according to official data. But orders for machinery and electronic products have been slow.

Wang from Jiaozhou's Foreign Enterprises Administration cited two indicators that would suggest a possible recovery for exports: trade import and export data and production of shipping containers. At the moment, the trade decline has narrowed but container production halted, which convinced him that a warming export is still far off. 

Standard Chartered Bank's head of China research Stephen Green noted, "If China's export is half-filled glass of water, how should we see this glass -- half empty, or half full? Unfortunately, we think the cup is half empty."

Green said it's no surprise that export growth started picking up month-on-month this year after hitting lows at the end of 2008. And in the third quarter, he said, exports will perform well but will not exceed expectations.

Hard Adjustments

On a local scale, many SMEs are trying to adjust their businesses to survive. Many started exploring the domestic market in hopes of countering shrinking international demand.

Meanwhile, Bolan Food Co. in Qingdao has been trying to find new export markets ever since the financial crisis broke out. But the search has been fraught with peril. "There are too many defaults" among overseas customers, said Bolan general manager Guo Lei.

For example, as of late August, four shipping containers of Bolan goods that left Qingdao on March 21 were still sitting at dockside at the port of Karachi in Pakistan. "We have exchanged more than 50 emails with our client," Guo said. "They neither picked up the goods nor said they do not want them."

Other goods went unclaimed after being shipped to Spain but were eventually purchased by other clients. Nevertheless, the port delay cost Bolan nearly US$ 50,000.

To help companies such as Bolan, the State Council, China's cabinet, in late May proposed an export credit insurance policy aimed at reducing payment risks associated with foreign trade affected by the global financial crunch. The government set a 2009 goal to increase credit insurance coverage to US$ 84 billion, while allowing average premiums to fall up to 30 percent from 2008 levels.

But Guo does not find the policy attractive. "Clients think you do not trust them when you use export credit insurance," he explained.
　　
The new business environment is also eliminating low-tech companies, creating opportunities for structural adjustment but forcing factories to close. Jiaozhou used to have about 100 low-tech leather processing companies, but only one is left.

A report by Guotai Junan Securities said the economic crisis has not improved the bargaining power of Chinese export companies but has motivated them to upgrade their technology.

Policy Aid

Central and local governments have launched several programs aimed at supporting China's critical export business. On the local level, for example, Jiaozhou has offered to subsidize 50 to 80 percent of overseas trade show costs for small- to medium-sized enterprises (SMEs) in the area. And the Ningbo city government is handing out advertising subsidies to export enterprises.

These policies seem to be having some positive effects. According to customs bureau statistics, January-July export volumes declined at a slower pace among private companies than at state-owned or foreign investor enterprises.
　　
However, policy support cannot offset shrinking international demand. That's why Song Hong, international trade research director at the China Academy of Social Science, said China's exports will remain in negative growth territory year-on-year for some time.

Song expects the situation to improve compared with the downturn recorded in the first half of this year. But how well things improve would ultimately depend on the success of a global economic recovery.