China’s exports and imports fell in December for the second month in a row, showing how badly the financial crisis is hitting the world’s fourth-largest economy and putting Beijing under pressure to do more to protect jobs.
The 2.8% drop in exports from a year earlier was tiny next to the December declines of 42% and 17.4% reported by neighbors Taiwan and South Korea.
But several economists said collapsing demand in the United States and Europe was likely to catch up with China before long, which may force Beijing to take new steps to protect the country’s all-important export industries.
Ma Xiaoping, an economist with HSBC in Beijing, said she expected exports to fall at an annual rate of about 20% in coming months—a stark contrast to the 17.2% increase China enjoyed in 2008.
“Just look at the plunge in exports in Taiwan and South Korea,” Ma said. “Chinese exporters are in a similar position to them, and you can’t expect China to do a great job while everybody else is in trouble.”
Imports slumped 21.3% from December 2007, an even steeper drop than November’s 17.9% fall, the General Administration of Customs reported on its website.
“Weak non-oil imports suggest either or both of a parallel slashing of domestic demand, or exporters anticipating (in their orders for parts to assemble from Japan, Korea and Taiwan) further major weakness in exports this year,” Charles Dumas of Lombard Street Research, a London consultancy, said in a note.
Crumbling prices of oil and other raw materials have cut China’s commodities bill in recent months, but Lu Zhengwei, chief economist at Industrial Bank in Shanghai, agreed that the slide in imports also pointed to weakening domestic demand.
“The real economy is facing serious challenges right now,” he said. “China has to boost exports to reduce unemployment and social unrest.”
The closure of tens of thousands of export firms on China’s seaboard has cost an estimated 10 million migrant workers their jobs in recent months, worrying Communist Party leaders who depend on strong growth to underpin their political legitimacy.
The glum picture of the economy painted by the trade data weighed on Shanghai stocks, which fell 1.95%.
Because of wilting imports, China chalked up a huge trade surplus in December of $38.98 billion, just shy of November’s all-time high of $40.1 billion. For 2008, the surplus swelled to a record $295.46 billion from $262.2 billion in 2007.
With the United States deep in recession, Chinese officials are worried about increased protectionism under President-elect Barack Obama, who takes office next Tuesday, if the surplus does not come down.
Thomas Donohue, president of the U.S. Chamber of Commerce, said he had used a visit to Beijing to advise policymakers not to take the protectionist rhetoric that is likely to come out of Washington too seriously.
“Look not at what people say but what they do, and even when there are things that are proposed, wait and see if they happen,” Donohue told reporters.
But he also warned Beijing not to use its drive to stimulate the economy as an excuse to give domestic industries an unfair advantage. “That’s not going to play well,” he told Reuters.
Beijing is pulling out all the stops to ensure growth of around 8%—the minimum rate thought necessary to absorb millions of people entering the workforce each year.
The government unveiled a four trillion yuan ($585 billion) economic stimulus package in November and the central bank has cut interest rates five times since mid-September. Officials are also studying policies to help steel and car manufacturers along with further steps to prop up the property industry.
Yiping Huang, chief Asia economist with Citigroup in Hong Kong, believes China will hit its goal of 8% expansion in 2009, but he said less and less of that growth would come from net exports as fiscal stimulus kicks in and boosts imports.
China’s trade surplus has generated about a quarter or a th