China's exports tumbled in February as the world's third-largest economy felt the full force of the global financial crisis, but capital spending accelerated in response to a massive government stimulus package.
With the world experiencing its deepest recession in decades, pessimists said the slump in exports was unlikely to end soon. Some said China could even record a trade deficit before long.
But optimists saw fresh hope in the more forward-looking investment data that China might pull out of its swoon faster than other major economies, thanks to the government's pump-priming and galloping credit growth.
“China has finally and spectacularly succumbed to the world financial crisis on the export side, and it's difficult to see why that would improve in the short term,” said Paul Cavey, an economist at Macquarie Securities in Hong Kong.
Exports in February slid 25.7% from a year earlier, dwarfing forecasts of a 5.0% fall, while imports dropped 24.1%, close to projections of a 25.0% decline.
The resulting trade surplus was just $4.84 billion, a three-year low, compared with $39.1 billion in January and a record $40.1 billion in November, the customs administration said. Markets had expected a figure of $27.3 billion.
Chinese exporters had hitherto fared better than their competitors in places such as South Korea and Taiwan, encouraging conjecture that cost-conscious shoppers in the West were trading down to cheaper made-in-China goods.
But Isaac Meng, an economist with BNP Paribas in Beijing, said it was unrealistic to expect China to remain immune to the sharpest drop in global trade in 80 years.
“That's a terrible number. It will have a pretty big impact on Chinese domestic demand,” he said of the export drop, which was the steepest since bankers started keeping records in 1993.
“Probably 60-70 million workers directly work in these export sectors, so there will be secondary impacts on capital expenditure, employment and consumption,” he said.
The government estimates that 20 million migrant workers, who labor mainly in export factories and in construction, have lost their jobs so far because of a collapse in global demand and a slump in the domestic real estate market.
“Any recovery in the export sector will not take place until the third or even the fourth quarter of this year,” said Mei Xinyu, a researcher with the Ministry of Commerce.
But figures released earlier by the National Bureau of Statistics suggested that the government is already enjoying some success in its drive to make up for the shortfall in exports by boosting capital spending.
Investment in urban areas in fixed assets such as roads, power plants and apartment buildings rose 26.5% in January and February from a year earlier, easily beating market forecasts of a 21.5% increase.
“The figure shows the economy is doing very well and Beijing's stimulus package is working,” said Jiang Chao, an analyst at Guotai Junan Securities in Shanghai.
In all of 2008, urban fixed investment was up 26.1%.
The combined number smooths out swings due to the Lunar New Year, which fell in January this year but in February last year.
Yu Song and Helen Qiao at Goldman Sachs said the rebound in investment came sooner than they had expected, increasing the chances that domestic demand will be stronger than they thought.
“Downside risks from external sectors will likely counterbalance the increasing upside risks we foresee from the government-led investments in our growth forecast,” they said in a note to clients.
Detailed figures showed the initial impact of the 4 trillion yuan ($585 billion) stimulus plan unveiled by Beijing on November 9.
Spending on projects backed by the central government rose 40.3% in the first two months, while investment in transport, including railways, rose a whopping 210.1%.
“There's no doubt that fixed-asset investment will be on an upward trend in the first half of this year, given the capital being injected into infrastructure and public housing,” said Lu Zhengwei, chief economist at Industrial Bank in Shanghai.
In addition, bank lending is surging; cement and steel output rose 17% and 2.4%, respectively, in the first two months; the decline in power demand slowed; and car sales topped 800,000 in February for the first time in eight months.
“I am hoping that China can lead the world out of this crisis first,” Jeffrey Sachs, adviser to UN Secretary General Ban Ki-moon, told Reuters in Dar Es Salaam, the Tanzanian commercial capital.
But other figures suggest China is not out of the woods yet.
Inventories of raw materials such as coal have started to mount again; a rise in prices of steel proved to be short-lived; and investment in the glutted property sector was just 1.0% higher than in the first two months of last year, the government said on Wednesday. (Reuters)