Written by Elaine Zhang and Ryan Wu
BEIJING (Reuters) – Chinese exporters – the last reliable pillar of the world’s second-largest economy as it grapples with the epidemic, weak consumption and a real estate crisis – are warning of tough times ahead as weak overseas markets force them to lay off workers and turn around. to low-value goods and even lease their factories.
Alarm bells (NASDAQ:) sounded for China’s $18 trillion economy when last week’s trade data showed export growth far below expectations and slowed for the first time in four months.
Those alarms are echoing in workshops in the manufacturing hubs of eastern and southern China, in industries from machine parts and textiles to high-tech home appliances, as companies slump while export orders dry up.
“China’s exports are very likely to slow further or even contract in the coming months, as key economic indicators point to slowing global growth or even a recession,” said Ni Wen, an economist at the Shanghai-based Hwabao Trust.
Exports are more vital to China than ever, with all other pillars of its economy on shaky ground. Nie estimates that exports will account for 30-40% of China’s GDP growth this year, up from 20% last year, even as outbound shipments slow.
“We had absolutely no export orders in the first eight months,” said Yang Bingbin, 35, whose company makes valves for industrial use at the East China Export and Manufacturing Center in Wenzhou.
He gave up all but 17 of his 150 workers and rented most of his 7,500 square meter (80,730 square foot) factory.
He sees little hope in the fourth quarter, usually its busiest season, and expects sales this year to be 50-65% lower than last year, with the faltering domestic economy unable to take any slack from the slump in exports.
To support the sector, export tax cuts have been expanded, and a cabinet meeting chaired by Premier Li Keqiang on Tuesday pledged to support exporters and importers to secure orders, expand markets and improve the efficiency of port and logistics operations.
Reliance on exports
China has moved over the years to ease its economy’s dependence on exports for growth, and reduce its exposure to global factors outside its control, while some low-cost manufacturing has shifted to other countries like Vietnam as China grows richer and costs rise. .
In the five years before the epidemic, from 2014 to 2019, the share of exports in China’s GDP shrank to 18.4% from 23.5%, according to World Bank figures.
But that share is back again with the onset of COVID-19, hitting 20% last year, in part as home-grown consumers around the world snap up electronics and household goods in China. This has also helped support China’s overall economic growth.
But the epidemic returned to hit China this year. Its stringent efforts to contain the local coronavirus outbreak have led to shutdowns that have disrupted supply and shipping chains.
But more dangerous for exporters, they say, is the slowdown in external demand, as the fallout from the pandemic and the Ukraine conflict fuels inflation and tighter monetary policies that dampen global growth.
“The decline in demand for robotic vacuum cleaners in Europe is exceeding our expectations this year, as customers placed fewer orders and are unwilling to buy expensive products,” said Qi Yong, a Shenzhen-based smart home electronics source.
“Compared to 2020 and 2021,” he said, “this year is the most difficult year and full of unprecedented hardship.” He said that while this month’s shipments were picked up in the run-up to Christmas, sales could continue to fall 20% in the third quarter from a year earlier.
It has cut 30% of its staff, to about 200, and may lay off more workers if business conditions require it.
These cutbacks have put more pressure on policy makers looking for new sources of growth in an economy burdened by a year-long real estate slump and turmoil caused by Beijing’s COVID-free policy.
Chinese companies involved in the export and import of goods and services employ a fifth of China’s workforce, and provide 180 million jobs.
Some exporters are adjusting their operations in response to the recession by producing cheaper goods, but this will also affect revenues.
Miao Yujie, who runs an export company in the eastern city of Hangzhou, said he has started using cheaper raw materials and producing low-value electronic goods and clothing that attract inflation-wary consumers and who are price-conscious.
“There will be a significant drop in exports in the second half of the year,” Miao said.
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