Does China Premier Wen's Latest Comments Mean More Stimulus Is Coming?

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Photo: (Photo by Feng Li/Getty Images)

BEIJING (AP) — Chinese Premier Wen Jiabao has called for efforts to stabilise weakening exports amid signs the country’s economy is weakening despite stimulus efforts.Wen’s weekend comments during a visit to Guangdong province, an export centre in the southeast, follow a wave of bankruptcies that has raised the threat of job losses and unrest. That comes at a sensitive time as the Communist Party prepares to hand over power to younger leaders.

“The third quarter of the year is a critical period for China to realise the year’s export growth target and we should take targeted steps to stabilise growth,” Wen said, according to the official Xinhua News Agency.

The report gave no indication of possible measures but Beijing previously has promised tax cuts and loans by state banks to help struggling exporters.

Export growth in July fell to just 1 per cent, well below forecasts, from the previous month’s 11.3 per cent growth due to weak demand in debt-crippled Europe, China’s biggest export market, and the United States, which is struggling with a sluggish recovery.

Beijing cut interest rates twice in June and is pumping money into the economy through higher spending on public works construction. Authorities have resisted pressure for more aggressive stimulus after huge spending in response to the 2008 crisis fuelled inflation and a wasteful building boom.

China’s August manufacturing activity fell to a nine-month low, according to the preliminary version of HSBC Corp.’s monthly purchasing managers’ index. It said new export orders fell at their fastest rate in three years.

Trade contributes a much smaller share of China’s growth than it did a decade ago but export-dependent manufacturers that supply the world with clothes, toys, shoes, furniture and other goods employ millions of people. The plunge in demand since the 2008 crisis has forced thousands of small producers out of business and survivors have cut payrolls.

The International Monetary Fund and private sector forecasters expect China’s economy to grow by about 8 per cent this year. That is robust compared with low single-digit growth expected in the United States and a contraction in Europe but painful for Chinese companies accustomed to a rapid expansion.

Analysts expect China to rebound late this year or in early 2013 but say a recovery will be too gradual and weak to drive global growth if the United States and Europe fail to improve.

The government set a target of 10 per cent trade growth this year. Trade grew by 9.2 per cent over the first half but that rate fell to 7.8 per cent for the first seven months of the year, making the annual target look increasingly hard to meet.

In the southeastern port of Wenzhou, an export centre, a local business association says 10 per cent of its 3,000 member companies have closed and 20 per cent are in trouble, the government newspaper China Daily reported Monday.

Chinese leaders have talked repeatedly about the need to stabilise foreign demand but they have few ways to encourage consumer spending abroad when key export markets are hurt by Europe’s debt crisis and the sluggish U.S. recovery.

The country’s shipbuilding association says orders for new ships from foreign and domestic customers in the first half fell by 50.3 per cent from a year earlier. State media 46 shipyards might close for lack of orders.

The slowdown has led to a backlog of inventory among exporters and producers of basic materials such as steel.

Total profits at steel makers fell by 96 per cent in the first half, according to data from the state-sanctioned China Iron and Steel Association cited by JP Morgan.

“Even with some degree of improvement in downstream demand, the need to digest significant stockpiles of finished goods and many growth-sensitive commodities will temper China’s gradual demand recovery,” said Jing Ulrich, JP Morgan’s chairwoman for China equities, in a report Monday.

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