International
China fears exporters will be devastated by a US slowdown
By Finfacts Team
Nov 16, 2007, 06:09

Chinese Commerce Minister Bo Xilai

China's Ministry of Commerce said on Thursday that the first ten months of 2007, Sino-US and Sino-EU bilateral trade value both topped $200 bn. China’s trade with Japan, ASEAN (Association of South-East Asian Nations), Hong Kong and other countries / regions also continued to grow. However, the Ministry warned in a report of the potential negative impact from a US slowdown.

Statistics revealed that the EU has become China’s largest trading partner. From January to October, Sino-EU bilateral trade value totaled $287.52 bn up by 27.5%. Sino-US bilateral trade value rose by 15.7% to $248.19 bn and marked US as China’s second largest trading partner. Japan ranked the third with $191.89 bn, up by 14%.

Over the first ten months, China’s bilateral trade with ASEAN, Hong Kong, South Korea and Taiwan all surpassed $100 bn,  valued at $163.53 bn, $158.55 bn , $129.7 bn and $100.86 bn, up by 25.9%, 20.3%, 19.1% and 14.6% respectively.

The Commerce Ministry warned that a slowing US economy would result in a fall in Chinese exports that would mark a “turning point” for China’s rapid economic growth.

A report warned that a US economic slump may impact the world economy, and especially China due to the proximity of economic ties with the US. The report said if China's exports drop noticeably next year, its macro economy will risk a growth slowdown.

According to the Ministry's statistics, China's exports to the US in the first quarter of 2007 rose 20.4% over the same period last year, while year-on-year growth fell to 15.6% in the second quarter and to 12.4% in the third quarter.

“If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.

Exports account for more than a third of China’s economic growth and 10%of overall GDP.

The US receives a fifth of all Chinese exports, making it the second-largest destination after the European Union.

The People's Bank of China estimates that every 1% drop in US economic growth translates into a 6% fall in Chinese exports.

China's trade surplus hit a new monthly record of US$27 bn in October, encouraging major trade partners to urge China to reduce its trade surplus. However, the report noted the government should maintain foreign trade policy stability and continuity, and prevent exports from a sharp decline.

"US interest rates are moving in the opposite direction from our interest rates and this will offset our efforts to control domestic inflation and overheating property and stock markets, increasing the difficulty of (overall) macro-economic control," the report said.

It also warned that continued turmoil in developed countries' financial markets will drive more hot money into China as a safe haven, further challenging government financial control.