Europe’s debt crisis takes toll in China as exports slow

BEIJING — Exports are down. Some small factories have closed. Growth projections for next year have been lowered. Foreign exchange reserves have lost their value.

And in a further sign of just how badly the continuing debt crisis in the euro-zone economies is affecting China, a few economists here are even speculating that China could soon see its first trade deficit in two decades.

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 Chinese Premier Wen Jiabao has vowed to create an economy driven by consumption.

“The shrinking European market will definitely have an impact on China’s exports, and we should be prepared for it,” said Teng Tai, the chief economist of China Minsheng Banking. He said the falloff in demand from Europe “will be painful.”

Any slowdown in China could also be felt more widely, because of its role in recent years as a principal engine of global economic growth.

China sends one-fifth of its exports to the European Union, and Bert Hofman, the World Bank’s chief economist for the region, said the slowdown was hitting every sector “from toys to flat-screens,” with a particular effect on the electronics industry. In Dongguan, in export-heavy Guangdong province in southern China, some 450 small and medium-size companies have closed in the past 10 months, mostly firms making clothing and toys, as export orders have shrunk.

Some businessmen and economists said the latest global slowdown would accelerate China’s switch from an economy dependent on exports to one fueled by domestic consumption.

China continues to run a trade surplus, expected to be about $150 billion this year. But that surplus has declined for three years running, and the slide of exports to Europe, combined with continuing weak demand from the United States, has at least some economists here warning about a sharper slide that might even lead to a trade deficit, something recently considered unthinkable.

A World Bank report this week on the East Asian and Pacific economy lowered the growth forecast for China to 9.1 percent this year and 8.4 percent for 2012, mainly because of the concern about the debt problems in Europe. Although far healthier than growth rates in the West, that is lower than the bank had previously forecast and reflects a slowdown from 2010, when the economy grew at 10.4 percent.

A broad range of Chinese officials, economists and businessmen say Europe’s financial problems have already had a contagion effect here in the world’s second-largest economy and around the Asian region, affecting not only exports but also capital flows and the value of foreign exchange reserves.

“We can’t rule out the possibility of a trade deficit next year,” Xia Bin, a member of the Central Bank committee on monetary policy, said in remarks to the Reuters news agency on Tuesday that were widely reported in China.

The Agricultural Bank of China said in a report released Monday that China’s year-on-year export growth to the E.U. has fallen into single digits — 9.8 percent in September and 7.5 percent in October. Those figures were substantially down from the 22.3 percent year-on-year growth in August.

The euro-zone crisis has also brought a decline in the amount of foreign capital flowing into China. According to the Agricultural Bank of China, which cited government statistics, investment in China from the 27 E.U. countries rose 1.05 percent in the period from January to October this year, a huge drop from the 10.71 percent increase in 2010. Also, the bank said, because of the depreciation of the euro against the dollar, China’s foreign exchange reserves lost $87.9 billion in value.