China's export-dependent provinces scramble for shelter
from U.S. trade storm
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[September 14, 2018]
By Stella Qiu and Ryan Woo
BEIJING (Reuters) - China's
export-dependent cities and provinces are scrambling to provide relief
to exporters, stabilize employment and avert the possibility of social
unrest as an intensifying trade dispute with the United States threatens
to further erode business.
Guangdong, China's biggest province by gross domestic product, this week
offered to cut corporate taxes, slash electricity prices and reduce
transport and land costs as additional U.S. tariffs since July exposed
Chinese manufacturers to the prospect of empty order books.
The tariffs have come at a particularly bad time for the southern
province, which is in the midst of an economic restructuring as it tries
to move away from low-end, labor-intensive manufacturing.
The shift has already led to job losses.
Fujian, another big-exporting province on the coast, unveiled a similar
package of measures in August to soften the blows of the trade war.
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The plight of the provinces is just a taste of what could come if the
United States carries out its threat to impose additional tariffs on all
of its Chinese imports.
All-out U.S. retaliation would scuttle China's plan to pivot away from
basic industries to higher-value manufacturing, and could result in job
losses in the hundreds of thousands, according to one private estimate.
"To some, this is a microcosm of what could happen to other
export-dependent provinces should Trump roll out the full tariffs," said
Jonas Short, head of Beijing office at brokerage Everbright Sun Hung
Kai.
"It's also structural - cost rises due to land usage, as well as social
security and funding pressures. But also the shock of these tariffs
acted as a double whammy."
CITIES UNDER SIEGE
Guangdong's exports fell 2 percent in the first seven months from a year
earlier, with shipments of machinery - accounting for more than half of
its exports - up only 2.2 percent.
Three Guangdong cities - Zhongshan, Foshan and Shenzhen - are racing to
meet criteria for a program under which exporters, both domestic and
foreign-owned, are exempted from a value-added tax of 16 percent.
Small firms with no export licenses can also bundle their products with
trading firms that have permits.
Zhongshan, which shares the Pearl River Delta with Guangzhou and
Shenzhen, is especially vulnerable, being one of the Chinese cities most
dependent on U.S. customers.
Directly in the line of fire is Zhongshan's Guzhen district, the largest
production base of lighting fittings in China.
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U.S. tariffs have already hit makers of light-emitting diodes (LEDs).
The Trump administration is readying more duties on $200 billion worth
of Chinese imports that will include most lighting products.
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Shipping containers are seen stacked at the Dachan Bay Terminals in
Shenzhen, Guangdong province, China July 12, 2018.
REUTERS/Stringer/File Photo
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The finance ministry said last week it would raise tax rebates on more than 300
products including LEDs, semiconductors and machinery.
"The trade war is partly to be blamed for the declining exports," said a
businessman who runs a trading company in Zhongshan who only gave his surname Xu.
"The Zhongshan government is applying for the program because of the fall in
exports."
Xu said he expected Zhongshan to join the program in September or October.
Zhongshan's exports slumped 21.3 percent in the first half with the customs
agency attributing that to factors including the trade tension, which started to
flare in March. Exports to the United States slumped 19 percent.
The Zhejiang city of Yiwu - the largest wholesale market for general merchandise
exports - was the first to join the program, in 2013. It has helped double the
city's exports that year, according to official data.
But there is no guarantee.
Guangzhou joined the program last year, and exports grew 9.1 percent in 2017.
Since then, its exports have fallen. Shipments declined 8.8 percent in the first
seven months of this year.
The Zhongshan government said the commerce ministry had not yet approved its
application to join the program.
The cities of Wenzhou and Quanzhou, in the provinces of Zhejiang and Fujian, are
also looking to join the program, with Wenzhou aiming to boost its exports by $2
billion annually.
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JOB CONCERNS
JPMorgan estimated China could lose 700,000 jobs if the United States imposes 25
percent tariffs on $200 billion worth of Chinese exports, and if China were to
retaliate by devaluing its currency by 5 percent and adding to levies on U.S.
goods.
In January-July, the number of jobs at Guangdong's industrial firms fell 4.5
percent from a year earlier to 13.15 million, Guangzhou's statistics bureau told
Reuters.
Xu Yangneng,general manager at an LED firm in Foshan city in Guangdong, said his
company stopped its export business after the tariffs in July as profits were
being squeezed, and would focus on the domestic market instead.
"Business at many factories in Foshan whose biggest market is the U.S. is quite
slow," Xu said.
"Some just put their workers on holiday or simply lay them off."
(Reporting by Stella Qiu and Ryan Woo; Additional reporting by Beijing Newsroom;
Editing by Robert Birsel)
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