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China’s Premier Warns of Economic DifficultiesAs China’s economy continues to contract and foreign trade remains sluggish, Premier Wen Jiabao visited Guangdong Province this past weekend to investigate local conditions. This was the fourth regional visit in the last two months. His remarks and other data such as the profit margin for a ton of steel show that China’s overall economy is not growing as hoped.
Since the beginning of this year, China’s economy has been feeling downward pressures as GDP growth year-over-year is only 7.6 percent, which is the first instance of growth being lower than 8 percent since the first quarter of 2009.
Official media admitted as much in an article in People’s Daily, the Party mouthpiece, dated Aug. 26: “Since the beginning of this year, China’s economy has been under pressure. Influenced by the weakening international market, the growth rate of foreign trade declined. Especially after July, the export growth in the main coastal provinces and cities is apparently slowing down.”
According to an official report, Premier Wen Jiabao visited a number of enterprises in a few economically developed areas including Guangzhou, Foshan, Dongguan with the Guangdong Provincial Party Secretary, Wang Yang, on Aug. 24 and 25.
Previously, the premier went to Zhejiang Province, another well-developed area in China, on Aug. 14 and 15. He also visited Jiangsu and Sichuan, two economically important provinces, from June 6 to 8 and June 13 to 15 respectively.
He has repeatedly stressed in his visits, “The economic difficulties may continue for some time.”
Wen Jiabao said in Guangdong that leading indicators such as the new export orders sub-index show that future exports will still face difficulties and uncertainties, which merits serious attention.
The information released by the General Administration of Customs on Aug. 10 shows that China’s exports in July was $ 176.94 billion, an increase of only 1 percent, much lower than the 8 percent that economists had expected.
The European Union (EU) is China’s largest export market. However, the spokesman for China’s Ministry of Commerce, Shen Danyang, said earlier this month, “The amount of trade between China and the EU has seriously declined this year. It has become the primary factor affecting China’s overall growth rate in exports.”
Wang Yuwen, a researcher in the Financial Research Center at the Bank of Communications, said that the export environment for China is still not optimistic. In addition to the slowing external demand, unfavorable factors include a continuing rise of short-term exchange rates and of labor costs in China.
Trade disputes with other countries are also increasing, reported The Financial Times on Aug. 11.
HSBC’s Purchasing Managers Index (PMI) for China’s manufacturing released on Aug. 23 fell to a nine-month low, showing that manufacturing had a serious depression in August, and manufacturing in China continues in a slump.
China’s stock market fell when the new PMI was announced. The Shanghai Stock Exchange Composite Index closed at a 41-month low on Aug. 24, down 2,100 points.
The economic downturn is especially troubling for the iron and steel industry. Wang Xiaoqi, vice president of China Iron and Steel Association, said at the “China Coal-Coke Industrial Chain Supply and Demand Situation Summit Forum 2012” on Aug. 23 that the profit for selling a ton of steel is 1.68 yuan (approximately US$0.26).
All this has led to layoffs and plant closings. Zhou Dewen, president of Small and Medium Enterprises of Wenzhou City, a city with well-developed private enterprises in China, said in an interview with the China Times, “The real economy is very bad. Shutdowns and closures have now reached 60 percent of the firms in the coastal areas of Zhejiang.”
One response to the economic slowdown is to layoff low-income migrant workers. Caixun published a report titled, “The Tide of Migrant Workers Returning Home Is A Barometer of the Economy,” on Aug. 23, which said that migrant workers usually return home before the Chinese New Year. If the economy is slow, especially in foreign trade, factories will not hire extra migrant workers, so they will have to go home. At present, among 130 million migrant workers in China, 20 million people have been laid off and will return home due to financial woes, a situation rarely seen over the past decade.
To aid the current economic situation, Premier Wen proposed an increase in macroeconomic regulation and control, and enhancements in the relevance and effectiveness of economic policy.
Yuan Gangming, a researcher with the Center for China in the World Economy at Tsinghua University, said that Wen’s remarks reflected the fact that any decline in exports brings substantial economic pressure. But the fact that Wen mentioned the need for greater macroeconomic regulation does not necessarily mean that will happen, he said.
