China Faces 2009 Slump

China's declining exports show the depth of its downturn, economists say.
By Michael Lelyveld

BOSTON—As China struggles through its worst slowdown in a decade, economists say the slump is likely to last through 2009.

Years of double-digit growth have come to a sudden halt for China's export-driven economy as demand in industrialized countries goes cold.

Amid a flurry of fading figures, China's General Administration of Customs reported this month that exports fell 2.2 percent in November from a year earlier, marking the first decline in seven years. China's imports plunged by a steeper 17.9 percent, reflecting a drop in materials needed for export-related output.

Industrial production grew by a frail 5.4 percent, the weakest performance in the past 10 years, the National Bureau of Statistics (NBS) said. Foreign direct investment plummeted 36.5 percent, according to the Ministry of Commerce.

The downturn has defied optimistic predictions that China's dynamic economy could stay insulated from the global downturn. Harvard University economics professor Dale Jorgenson said it is now clear that China cannot remain immune.

"Before these figures came out, there was a theory that was current that, somehow or other, countries like China were decoupled from the world economy and would be able to survive any kind of economic disruption like we're seeing in the U.S. and Europe," Jorgenson told Radio Free Asia. "I think that has been pretty thoroughly debunked."

Trade slows

China's boom times have been closely linked to export opportunities. In the export center of Guangdong province, trade volumes slid 13 percent in November from the year-earlier period, the official China Daily reported. Growth in China's port traffic was also the lowest in 10 years, according to the Ministry of Transport.

As Western economies limp through recession, China will see an inevitable decline in the markets for its products, Jorgenson said. That means the slowdown is likely to drag on throughout 2009, despite some forecasts of recovery in the second half of the year.

"I think that most people have pretty much written off 2009 at this point. There are a lot of financial disruptions and the financial markets have been slow to recover," Jorgenson said. "I think we're looking at 2010, assuming that our economic policies in Europe and the United States are successful enough, and of course that's a big if."

The outlook means that China's downturn may be longer and deeper than the government is expecting. Government planners have set a 2009 goal of at least 8 percent GDP growth, a level widely cited as necessary to create jobs for the 20 million workers that enter the labor pool annually.

But the World Bank has already forecast growth of just 7.5 percent. Jorgenson said the figure is likely to be lower.

"I think that this is going to be a pretty severe downturn," he said. "What that means is that instead of the Chinese economy growing at double digits, we're going to see something in the range of 6 percent. It could be even a little bit lower than that."

Forecasts 'premature'

Barry Naughton, professor of Chinese economy at the University of California San Diego campus, agrees that the forecasts of a second-half recovery are premature.

"We can't even visualize recovery yet because we're still in a situation where economic activity is slowing dramatically," Naughton said in an RFA interview.

November's substantial drop in imports suggests more than a dip in materials needed for export production, he said. China's domestic demand also appears to be slackening.

"What we're seeing is a very sharp and quick drop in Chinese heavy industrial production, so China needs less energy and fewer raw material imports," said Naughton. "This indicates that the domestic Chinese economic cycle is in a very sharp decline."

The assessment is borne out by NBS statistics on power generation, which dropped 9.6 percent in November after falling 4.6 percent in October. After years of racing to build new power plants, China now faces a glut of capacity with generators shut down.

Naughton believes that GDP growth next year could be far slower than the World Bank forecast.

"I think it's quite possible that it could be growth of around 2 to 4 percent," he said, although China's hard- currency reserves and other resources could give it a chance of quicker recovery.

Naughton is hopeful that the downturn will not lead to social instability, even if unemployment continues to rise.

"I don't think it's a social unrest situation. I think it's a hardship situation. The Chinese people are pretty good at bearing hardship," he said.

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