China’s exports feel the sting of U.S. credit crunch

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April 17 – At the ongoing Canton Fair, China’s largest trade event, it remains to be seen just how far-reaching the U.S. mortgage crisis will affect the Chinese market. Already some Chinese exporters say that orders have either been lowered or slower to increase compared to previous years.

“The growth of export orders in the first quarter of this year fell sharply to 20 percent from 140 percent in the same period of last year,” Cao Xiaojian, vice chairman of the Jiangsu Shuntian Co., Ltd. told the People’s Daily at the fair.

According to Ministry of Commerce, China’s trade surplus dipped to 10.2 percent to around US$ 41.6 billion for the first time in more than three years. Exports were up by 21.4 percent compared to last year’s 27.8 percent for the same period.

In 2007, the United States was China’s leading export market at 19.1 percent. It was also the year that Chinese exports finished at an estimated US$1.2 trillion and imports at US$956 billion with a whopping US$261 billion trade surplus. This is bound to change as the United States sorts out its domestic issues.

At the Canton Fair, Minister of Commerce Chen Deming told Xinhua that export growth remains stable and the global credit crisis impact will be followed. He said that the country’s export market was “relatively satisfactory” and such worry was “unnecessary.” He acknowledged that while there was a decrease in United States exports – the European Union, Japan and other new markets showed promise. He added that exports of products like textiles, garments, suitcases, shoes and toys were dragging, there were still increases to be made.

China will have to adapt to an export driven economy without the appetite of the U.S. consumer. “The U.S. and European markets are not the only choice for Chinese enterprises,” said Cao Xinyu, vice chairman of the China chamber of commerce for textile import and export to the People’s Daily. “The profitability would be pretty high in African markets like South Africa and Egypt.”

For the past 11 weeks, Chinese stocks have also been battered from lowered sentiments as the market braces for the spread of the credit. Take for example the case of China’s Cosco Holdings; the country’s second largest shipping firm has seen its formerly robust stock prices plunge in the past several weeks by as much as 10.4 percent to HK$18.42.

There exists a fear in container-line industry that the U.S. slowdown may drastically lower the need for transporting Chinese exports such as toys, computers and electronic goods. The situation is even made more precarious by the rising cost of fuel.

Then there is also the probability that the nation’s lending and deposit rates will increase to battle inflation. “The anti-inflation policy is a combination of both quantitative measures and price measures,” central bank chief Zhou Xiaochuan told Bloomberg News. “There’s room for using interest rates further.”