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Friday, June 18, 2021

Maritime Logistics Professional

China’s year-end export rebound not a turning point

Posted to Far East Maritime (by on January 11, 2013

The export rebound in China during December is being hailed as a recovery, but the fundamental trade issues have not improved.

The headwinds buffeting trade with China are severe and sustained. External demand for mainland-made goods is weak with the seemingly endless European sovereign debt crisis and a slowly recovering US stifling consumer spending.

The European Union remains the mainland’s biggest trading partner, but it was only its dismal economic situation that allowed the US to overtake the EU and become China’s largest export market in 2012. HSBC economists believe the western world's growth is likely to moderate to an “anemic” 0.9 percent year-on-year in 2013.

Rising production costs continue to affect China’s exports. There are a host of reasons for the cost hikes. Raw materials are costing more, minimum wages have gone up, worker benefits have been increased, business rentals have risen, power prices have increased even though power supply is insufficient, and Beijing has forced polluting factories to move inland, lengthening supply chains.

The only way a factory can offer low cost manufacturing is to work off very narrow profit margins, which have been severely eroded. In the Pearl River Delta, the majority of factories have Hong Kong owners. Thousands have gone out of business since the global financial crisis in 2008, and the Federation of Hong Kong Industries believes another 10 percent of the PRD factories will go under this year.

The rising costs of production, combined with the yuan’s appreciation, is making exports more expensive, which has affected orders. It also has cargo owners looking around for cheaper manufacturing centres outside China.

Global trade protectionism isn’t doing China any favours, either. As the world’s biggest producer of goods for export, China is affected more than any other country by protectionist measures. It faces more anti-dumping and countervailing investigations than anyone else and responds with reciprocal protectionist measures. These barriers to trade are counterproductive and hurt both sides.

So the year-end surge in exports is unlikely to be sustained, despite December’s figures hitting a seven-month high of 14.1 percent year-on-year. China’s full year exports were up almost 8 percent, way short of the 20 percent in 2011.

Most analysts predict a gradually improving Chinese economy and a 2013 export growth rate of around 10 or 11 percent. If the container shipping industry did not have almost half a million TEUs of capacity coming online this year that could almost be regarded as pretty good news.