March 28, 2024

After a Strong Recovery, China’s Economy Unexpectedly Stumbles Again

HONG KONG — Brightly hued men’s underwear in a rainbow of colors is no longer selling well in Europe for the Zhongtian Garments Company in Xiamen, China. Exports are down 30 percent in the last year.

Children’s guitars with bodies resembling cats and cartoon characters are no longer selling well for Yuesen Musical Instrument Factory in Huainan, China. And at the Yuzhongniao Outdoor Products Company in Jinjiang, domestic sales and exports alike are declining this year. The Canton Fair, China’s biggest export event, ended on Sunday with depressingly few new orders. “We are not even getting many people browsing this time,” said Alice Hong, Yuzhongniao’s sales manager.

After a powerful recovery through the autumn and winter from a V-shaped downturn last summer, China’s economy is unexpectedly faltering once again. Exports are weak. The country’s domestic economy is still growing mostly because of huge increases in lending by state-controlled banks and a surge in off-balance sheet lending. Consumer spending is rising, but not fast enough to offset weakness in other sectors.

That combination has prompted growing concerns among economists and business executives about the sustainability of even 7.5 percent growth in China in the coming years, the government’s current goal after three decades of double-digit growth with only a few interruptions.

The latest sign of trouble came on Wednesday, when China’s General Administration of Customs announced export and import figures for April. On the surface, they looked fairly respectable: exports were up 14.7 percent from a year earlier, and imports were up 16.8 percent.

But April 2012 was an exceptionally bad month for Chinese exports and imports — indeed, dismal trade statistics for that month were the first sign that economic weakness during the preceding winter was turning into a precipitous decline.

This April’s trade figures appeared even weaker when economists looked closer and found that the export growth had been largely propelled by growth in exports to Hong Kong, up 57 percent, and to special customs zones in China for export later, up even faster.

Since Hong Kong’s own data has not been showing large increases in imports from China so far this year, the Chinese government has already opened an investigation into whether exporters are overinvoicing for shipments; overstating exports can allow companies to evade currency controls and move money into China to profit from the gradual appreciation of the renminbi against the dollar.

Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, estimated that with the exclusion of overinvoicing, export growth came to only 5.7 percent.

Over the last few years, economists have tended to pay less attention to China’s exports because they were declining as a share of China’s total economic output, because of weak overseas demand. But newer research suggests that China’s may still be quite dependent on exports.

The reason is that multinationals have been rapidly localizing their purchases of everything from computer chips to auto parts in China instead of importing them from other Asian neighbors. So while total exports may not have been rising quickly in recent years in China, the Chinese content in each dollar of exports has been increasing.

Mr. Kuijs estimated that 20.7 percent of China’s economic output came from exports last year, a figure that had bottomed out in 2009 at 19.7 percent.

In a bad sign for exports in the months ahead, the Canton Fair announced early this week that export orders placed at this year’s spring session had fallen 1.4 percent from a year ago. It was the latest sign that steeply rising blue-collar wages in China and a gradually appreciating currency are starting to erode the country’s international competitiveness; foreign investment in China has also begun to level off, while surging in lower-wage countries in the region, like Cambodia and Vietnam.

Hilda Wang contributed reporting.

Article source: http://www.nytimes.com/2013/05/09/business/global/after-a-strong-recovery-chinas-economy-unexpectedly-stumbles-again.html?partner=rss&emc=rss