China Exports Down 25 Percent

By Ariana Eunjung Cha
Washington Post Foreign Service
Thursday, March 12, 2009

SHANGHAI, March 11 -- China's exports plunged 25.7 percent in February from a year earlier, surprising economists and suggesting that the country's recovery might take longer than its leaders had hoped.

The trade figures, released Wednesday, are the latest in a string of worrisome signs for the world's third-largest economy. Analysts had predicted that demand would remain stable or decrease only slightly.

"This is an ugly number," Merrill Lynch economists T.J. Bond and Ting Lu wrote in a note to clients.

While economic troubles spread through other parts of the world last year, China's exports continued to rise, jumping 4.3 percent year over year in the fourth quarter of 2008. But now, Bond and Lu wrote, "The export slowdown has finally come home to China."

The trade slump, which will significantly drag down China's gross domestic product if it continues, shows the extent to which the country has been unable to disentangle itself from the global economy, despite a $586 billion stimulus package aimed at boosting domestic investment and demand.

While the stimulus is credited with driving urban fixed-asset investments, strong credit growth and a jump in auto sales, economists say it hasn't been enough to combat the rise in corporate bankruptcies and unemployment.

"Because the Chinese government has taken some drastic measures to help the domestic economy, I think the worst period for China's domestic economy has already passed," said Dong Tao, an economist at Credit Suisse. "However, the worst time for the external economy has just arrived."

At the beginning of the annual session of China's legislature last week, Premier Wen Jiabao announced that the government's GDP growth target for 2009 was 8 percent -- strong growth for most countries, but less so for China, which became accustomed to double-digit economic growth in recent years. The government forecast is significantly higher than the 5 percent that many independent economists have predicted and the 6.7 percent that the International Monetary Fund forecast.

Sun Minchun, an analyst with Nomura International in Hong Kong, said in a research note that the fall in the trade surplus "means that net exports will likely subtract more from 2009 real GDP growth than we had expected."

However, he added that the unexpected increase in investment growth and the effects of the stimulus in the second half of 2009 could help offset a continued slump in trade. Given that investment is the most important driver of economic growth in China -- 43 percent vs. 7 percent for net exports -- Sun said he maintains his estimate of 8 percent GDP growth in 2009.

Researcher Liu Liu in Beijing contributed to this report.

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