China’s Premier Wen Jiabao urged extra measures to support exports and help meet economic targets as evidence mounts that the nation’s slowdown is deepening.
“The third quarter is a crucial period for realizing full- year targets on export growth,” Wen said during an inspection tour of Guangdong, the nation’s biggest exporting province, the official Xinhua News Agency said Saturday. “Facing the current difficulties, China should substantially improve the environment for companies’ operation and improve companies’ confidence.”
Wen’s visit was the latest in his tours of export- reliant provinces on the coast as he tries to boost confidence in an economy at risk of the weakest expansion in 13 years. Policy makers have limited the scale of stimulus after interest-rate cuts in June and July as they seek to support growth without fueling inflation or driving a rebound in property prices.
“The most important thing right now and the purpose of Wen’s trips is to reboot the confidence of businesses and focus more on employment,” said Helen Qiao, chief China economist with Morgan Stanley in Hong Kong. “We’ve seen a significant deterioration in exports and the government really has very few tools to stimulate external demand, but it’s an important gesture that the government shows it’s trying to help.”
Wen called for faster payment of export tax rebates, greater use of export credit insurance and reduced inspections and fees to ease the burden on companies, Xinhua said. He also said financial products for hedging foreign-exchange risks should be expanded.
Xinhua and state television reports on Wen’s visit made no mention of the Chinese currency, which has dropped almost 1 percent against the U.S. dollar this year after a 4.7 percent rise in 2011, giving some relief to exporters facing weak global demand.
China will refrain from allowing a steeper drop in the currency for fear of capital outflows and possible retaliation from trading partners including the U.S., according to Qiao and Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong
“A depreciation could trigger more trade protectionism and could backfire,” said Qiao. “With the transition to a new leadership in China and a U.S. presidential election this year, this would be the last possible option to consider. The most they can do is stay put.”
Wen’s Guangdong tour included Dongguan, a city where economic growth slumped to 2.5 percent in the first half of the year compared with 7.8 percent for the nation, according to government data.
Earlier this month, Wen went to Zhejiang province, where he urged government leaders and companies to have confidence and said the country was capable of meeting its growth targets. In July he visited Jiangsu, where he called for more aggressive fine-tuning of economic policies.
China’s export growth collapsed to 1 percent in July from a year earlier and industrial output and new yuan loans trailed estimates. A private survey on Aug. 23 showed manufacturing may contract in August at the fastest pace in nine months and a gauge of new export orders was at its lowest level in more than three years.
“Stabilizing economic growth is the key task for second- half economic work,” Wen said during his latest trip.
Overseas shipments in the first seven months rose 7.8 percent and imports gained 6.4 percent, putting China at risk of missing a 10 percent goal for trade growth this year.
“The most important determinant for exports is economic growth in other countries, which China can do almost nothing about,” said economist Lu. “If the government refuses to roll out further policy measures to support domestic demand in the next few months there is downside risk to our GDP forecast.”
Export growth could slump to 6 percent this year from 20 percent last year, according to Lu. He cut his estimate this month for 2012 economic expansion to 7.7 percent from 8 percent due to worsening external demand and the limited room for policy stimulus given continued curbs on the property market and government concerns that inflation will rebound.
That would be the weakest economic growth in 13 years and down from 9.2 percent in 2011. Wen in March targeted 7.5 percent expansion for 2012.
During his Guangdong tour, Wen said there are many “negative factors that will affect stable economic operations in the second half” and the difficulties of stabilizing growth are “relatively large,” according to Xinhua’s report. He reiterated that the government needs to increase the intensity of macro-economic adjustments to stabilize expansion.
At the same time, “China’s economic fundamentals haven’t changed, and we have a lot of good conditions and optimistic factors that will help stabilize growth,” Xinhua cited Wen as saying. The central government has been enhancing policy fine- tuning, and has achieved “good results” on stabilizing economic growth and improving market confidence, he said.
The benchmark Shanghai Composite Index of stocks fell to the lowest level since March 2009 on Aug. 24 as the slowdown hits corporate earnings.
China Shipping Development Co. said Aug. 22 it is seeking to delay delivery of 10 new commodity and oil vessels as slowing demand and a global glut damp rates. The Shanghai-based ship operator swung to a loss in the first half and predicted it will remain unprofitable for the nine months ending September.
© Copyright 2024 Bloomberg News. All rights reserved.