China Foresees Possible Trade Deficit in 2012
China may see its first annual trade deficit in 20 years next year based on export contracts during the months of September and October, according to former vice-minister of commerce Wei Jianguo.
A sharp drop in orders received from Europe and the U.S. during September and October show that the biggest consumers of China’s exports are seeing a sharp drop in demand for the upcoming holiday season.
“China’s export-reliant enterprises are facing their toughest time in years,” said Wei, secretary-general of the China Center for International Economic Exchanges. “The possibility of a full-year trade deficit cannot be ruled out next year. Growth in emerging markets will not compensate for China’s losses in Europe.”
China saw its last trade deficit in 1993.
Europe is China’s biggest trading partner and is experiencing its worst recession since World War II. Trade with Europe was $480 billion in 2010, or 16.1 percent of China’s total trade volume. China’s trade surplus is likely to fall from $183 billion in 2010 to only around $50 billion and $100 billion in 2011, said Wen.
September’s trade surplus shrank for the second straight month to $14.5 billion with both imports and exports falling more than expected. September’s export growth of 17.1 percent year-on-year was significantly less than August’s 24.5 percent.
Others don’t see such a gloomy outlook for 2012.
“The world economy will not be as bad as it was in 2008 and 2009,” said Xing Yuqing, director of Asian Economic Policy at the Tokyo-based National Graduate Institute for Policy Studies. He doesn’t foresee a full-year deficit for China in 2012.
“The global economy might see a temporary recovery in the coming two to three months due to lower oil prices or growth in the car market but it still faces great uncertainties,” said Li Wei, a Shanghai-based economist with Standard Chartered Bank. He believes that the prospects for 2012 will only become apparent during the fourth quarter and the first quarter of next year.
One negative factor that Wei is focusing on is the inability of small and medium-size enterprises (SMEs) in areas like Zhejiang and Guangdong to get loans, putting them under intense cash-flow pressure. Add that to surging labor and material costs and their ability to produce goods for export is severely weakened, he said.
SMEs employ more than 70 percent of China’s workforce, and their weakness could deal “a massive blow to the economy”, Wei said, arguing for a change in policies to loosen credit.
Wei suggested that about $50 – 100 billion of China’s $3.2 trillion foreign exchange reserve be used to support the export sector. He also suggested diversifying more of the reserves into natural resources and gold.
Recently Premier Wen Jiabao has also urged more lending to small- and medium-sized enterprises as well as a shift in policies to ease the credit for cash-starved small firms.
Economic growth will reach 9.3 percent for the third quarter and 9.2 percent for the entire year, according to the Center for China in the World Economy at Tsinghua University.
Third quarter growth is projected at 9.1 percent and full year GDP growth at 9.3 percent by Standard Chartered Bank.
China will release key economic data Tuesday.