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Slumping trade a sign of great fall for China

Lee is a Times staff writer.

China’s foreign trade took a tumble last month, as exports shrank for the first time in more than seven years and imports plunged.

The 2.2% drop in exports from November 2007, reported by the government Wednesday, underscores the rapidly deteriorating conditions in China’s economy. In October, the nation had posted a 19.2% jump in exports from a year earlier.

“It basically reflects what you’re seeing on the ground: Factories are closing,” said Andy Xie, an independent economist in Shanghai.

“It’s very grim,” he added. “You can bet the next few months are going to be worse.”

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China’s exports to the U.S. fell especially hard, dropping 6.1% as Americans socked by the recession reined in their spending.

Wessco International in Los Angeles is forecasting a 10% to 20% decline next year in the volume of toiletry kits, stationery, bags and other products that it makes largely in China for airlines, hotels and cruise lines, said Petros Sakkis, Wessco’s manager based in Hangzhou. That could be mitigated by new business that Wessco is chasing in China, the Middle East and Europe, he said.

Less than a year ago, U.S. companies with production operations in China were fretting about the appreciating Chinese currency, soaring raw material costs and pressure from local governments that seemed to want only high-end manufacturing. But all that’s eased since the global financial crisis took hold and spread to China.

“China needs us again,” Sakkis said.

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China’s imports fell more dramatically than exports -- down 17.9% in November from a year earlier. The drop, partly reflecting the decline in commodity prices, boosted China’s monthly trade surplus to about $40 billion, a record high, although it was hardly news to cheer about in Beijing.

Some analysts said the wider gap could add to trade tensions between China and its major partners: the U.S. and Europe.

The erosion of imports indicates weakening domestic demand. And the pullback in export orders from around the world has dealt a blow to China’s industrial base and wiped out countless jobs, triggering labor unrest that poses a severe test to the Communist Party leadership.

“On the one hand, government doesn’t want exports to drop dramatically and hurt social stability,” said Zhang Bin, deputy director of international finance at the Institute of World Economics and Politics, a government think tank in Beijing. “But on the other hand, it is necessary for China to have a structural adjustment and industry upgrade . . . to decrease some exports and transfer resources from the manufacturing industry to the service industry.”

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Zhang says he thinks the central government’s recently announced $586-billion economic stimulus package, consisting mainly of infrastructure projects, will be enough to sustain adequate growth.

The government, though, is expected to continue loosening lending policies and pushing through measures to bolster the sagging property market and help export businesses.

China’s efforts may get a boost from new data today that showed the nation’s inflation rate falling further in November as sharp jumps in food and energy costs eased. Consumer prices rose 2.4% over the year-earlier period, the government said. That was down from October’s 4% increase, and could give Beijing added room to spur economic growth without provoking more price hikes.

November’s trade report was released as top leaders in Beijing, concluding an annual economic planning meeting, pledged to maintain a “stable, healthy growth” next year by boosting domestic demand and restructuring the economy, according to the official New China News Agency.

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But Chinese leaders are facing powerful global head winds. Exports to the U.S. had been slipping for some months, but more recently, Europe, Japan and the Asia-Pacific region also have cut back on orders. Chinese-made steel products, electrical machinery, electronics and light manufacturing, such as apparel, all saw a sharp decline last month, analysts said.

“Demand is simply disappearing,” Tao Wang, a UBS Securities economist in Beijing, said in a research report.

Among the hardest-hit sectors has been China’s shipbuilding industry, which is reeling from cancellations. That in turn has rippled down to suppliers such as Dalian Lushun Xinfei Ship Machinery Co. in northeastern China.

“Many of the small manufacturers in our area are half-dead,” said Li Jiyou, the company’s general manager. He said his 20-year-old business would be lucky to break even this year, and he feared what lay ahead.

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“The aftershocks [of the global credit crisis] haven’t yet spread completely to our industry. Next year is going to be a big challenge for us.”

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don.lee@latimes.com


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