China’s third quarter GDP numbers, with growth falling to 9.1% year-over-year, reveal a troubled export sector under increasing cash-flow pressure. Employing about 70% of the China’s workforce, the china export sector will face their toughest years since the early ’90s as the head of China’s official research agency warned of the serious risk of a trade deficit in 2012 for the first time in two decades.
“China export-reliant enterprises are facing their toughest time in years. The possibility of a full-year trade deficit cannot be ruled out next year,” said Wei Jianguo, head of the China Center for International Economic Exchanges and former vice-minister of commerce, according to China Daily
Weakness across the globe has already stifled demand, putting pressure on Chinese exporters. But an even deeper problem is the European sovereign debt crisis. Europe is China’s largest trade partner, Wei explained, with trade in 2010 reaching $480 billion, about 16% of total trade volumes (total trade with the U.S. hit $456.8 billion in 2010).
As the crisis in Europe took a turn for the worst, with Greece failing to implement austerity measures and structural reforms and contagion spreading to Spain and Italy, and the continued slowdown of France and Germany (which Goldman Sachs’head economist, Jan Hatzius, says are already in recession), trade with China has fallen steeply.
Along with a fall in trade volumes has come a fall in China’s trade surplus with Europe, which totaled $183 billion in 2010 and will likely round off the year around at around $50 to $100 billion, Wei warned. China’s trade surplus with Europe fell for a second consecutive month in September to $14.5 billion.
“Growth in emerging markets will not compensate for China’s losses in Europe,” said Wei, noting that the slowdown in the U.S. was also affecting exports, which fell to 17.1% in September from 24.5% in August. While emerging markets will be the world’s engine of growth in 2012, as the IMF has foretasted, they won’t be able to pick up the slack left behind by Europe and the U.S., Wei believes.
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