Chinese exports plunged a record 26% in February, far more than analysts’ expectations, raising concerns among some investors that the world’s third-largest economy may be worse off than they thought.
But a separate report Wednesday by China’s government indicated that the nation’s $586-billion economic stimulus plan may be starting to kick in. Investments in land, buildings and machinery picked up last month, driven by the state’s increased spending for railway transportation, mining and other projects. Government spending also appears to have helped reduce the rate of decline of Chinese imports last month.
China’s trade surplus last month narrowed to $4.8 billion, from about $40 billion in each of the previous three months. With demand from the U.S. and other major economies shrinking, analysts expect smaller trade surpluses ahead for China.
That would probably slow the buildup of China’s foreign reserves, currently the world’s largest at about $2 trillion. In turn, that could affect Beijing’s future purchases of U.S. debt, a crucial component in Washington’s financing of its economic stimulus plan.
China’s role looms large because it is one of the few major economies continuing to expand, and many are looking to the Asian nation to help pull the world out of its financial mess. But China’s economic growth fell to 6.8% in last year’s fourth quarter, from 10.4% in the first half of 2008 and 13% for all of 2007, dragged down by weakening trade and investments.
It remains to be seen whether China can ramp up domestic demand fast enough to offset the dramatic decline of its once powerful export machine. If it can’t, Beijing faces rising unemployment and possibly social unrest. Millions of migrant workers have been laid off from factories, and many college graduates also are struggling to find jobs.
For years, exports have been a significant growth engine for China, but February’s data showed the fourth straight month of decline, and by far the steepest. Shipments of clothing and accessories, one of China’s largest export categories, plunged 37% last month from a year earlier, to $4.1 billion.
It isn’t just low-value goods that are getting hammered. Chinese deliveries of high-tech merchandise, including electronic information parts, electrical machinery and medical equipment, dropped 21% in February from a year earlier, to $22.1 billion. In all, China’s exports totaled $64.9 billion last month.
Imports in February were down 24.2% from a year earlier, to $60.1 billion. That was much less than the 43.1% year-over-year decline posted in January.
Chinese imports consist largely of raw materials for developing infrastructure and industrial production. Imports of crude oil, copper, steel and plastics all were down sharply.
But the rate of decline eased, suggesting that government spending and massive bank lending, at Beijing’s prompting, are starting to boost orders for materials and commodities.
“It’s a good signal,” said Zuo Xiaolei, chief economist at Galaxy Securities in Beijing. The latest trade report, she said, “should emphasize even more the need for additional efforts to push domestic demand.”