China's trade slump worsens in December

[January 13, 2009]  BEIJING (AP) -- China's trade slump worsened in December as exports fell at their fastest rate in a decade amid global economic turmoil, government data showed Tuesday, aggravating a decline that has fueled a wave of layoffs and fears of unrest.

December exports fell 2.8 percent from the same month a year earlier, after a 2.2 percent decline in November, the Chinese customs agency said. China's global trade surplus last year rose 12.7 percent over 2007 to a record $295.5 billion, possibly worsening tensions with the government of U.S. President-elect Barack Obama.

The visiting president of the U.S. Chamber of Commerce appealed to Beijing to resist pressure to respond to the downturn by trying to block imports.

The slump in global sales has forced thousands of Chinese factories to close. Communist leaders worry about unrest as laid-off migrants stream back to their hometowns from coastal manufacturing regions without jobs or money. Labor protests have occurred in some areas. The government is pressing companies to avoid more job cuts.

"Starting in October, our orders dropped sharply. We basically stopped production after October," said Sun Bin, general manager of Huang Gang Hengsheng Clothing Import & Export Co. in the central province of Hubei. The company sells clothing to the United States, Europe and the Middle East.

"We don't dare to produce, because the more clothes we make, the more we will lose," Sun said.

December's export decline was the sharpest since April 1999, according to JP Morgan & Co

.

"Export growth is likely to be flat in 2009, with negative year-over-year growth in the near-term," said Jing Ulrich, JP Morgan's chairwoman of China equities, in a report.

Beijing has cut taxes for exporters and taken other steps to help struggling manufacturers. The government is trying to reduce reliance on exports with a 4 trillion yuan ($586 billion) stimulus package announced in November that is aimed at by boosting domestic consumption. Premier Wen Jiabao, the top economic official, has promised additional steps to create new jobs.

Adding to exporters' misery, China's yuan has risen over the past year against the U.S. dollar. That has squeezed companies that receive dollars for their goods but pay wages, rent and other expenses in yuan.

The president of the Washington-based U.S. Chamber of Commerce, speaking before members of the American Chamber of Commerce in China, appealed to Chinese leaders to resist pressure to hamper trade.

"We're bringing a message here to this government: be patient, continue to work very hard to avoid protectionism at home as we are doing in an environment where, as economies get tough and unemployment goes up, people are very inclined to figure out how to close the door," said Thomas Donohue.

"We are going to have a big-time fight against isolationists, protectionists and people who think that they solve their problems by closing their door to the rest of the world," he said.

The decline in China's imports also accelerated in December, with purchases of foreign goods falling 21.3 percent, according to the customs agency. That was a bigger than November's 17.9 percent decline and reflected China's domestic economic slowdown.

The drop was due in part to lower prices for imported oil and raw materials but also reflected weaker demand in domestic industries such as construction, auto sales and steel.

Exports in December were $111.2 billion, while imports were $72.2 billion, the agency said. That made December's trade surplus $39 billion, the second-biggest after November's all-time high of $40.1 billion.

China's monthly trade surplus with the United States in December fell by 9.5 percent from a year earlier to $12.4 billion, but the total 2008 surplus with the U.S. rose 4.6 percent to $170.8 billion, the customs data showed.

The monthly trade surplus with the 27-nation European Union fell 1.6 percent from a year earlier to $11.7 billion, while the full-year 2008 surplus was up 19.4 percent at $160.2 billion.

Reflecting the trade slowdown, the central bank reported Tuesday that China's foreign reserves grew by only $45 billion in the three months ending Dec. 31. That was down from the $377 billion increase reported for the first three quarters of the year -- or an average of more than $125 billion per quarter.

The growth in reserves, which stood at $1.95 trillion on Dec. 31, is driven by the central bank's need to drain money from the economy to keep the flood of export revenues from adding to pressure for prices to rise. But the urgency of reducing China's money supply has eased as trade weakened.

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On the Net:

General Administration of Customs (in Chinese):
http://www.customs.gov.cn/

People's Bank of China (in Chinese):
http://www.pbc.gov.cn/

[Associated Press; By JOE McDONALD]

Associated Press writer Henry Sanderson and researcher Bonnie Cao in Beijing contributed to this report.

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