China’s Exports Shrink, Output Cools, Adviser Says

By Li Yanping and Kevin Hamlin

Dec. 9 (Bloomberg) -- China’s exports may have contracted last month as industrial output cooled, adding pressure for policy makers meeting in Beijing this week to do more to sustain economic growth.

“Things are not so good,” Fan Gang, an adviser to the central bank, said at a Beijing forum today. “November figures will come out soon, and industrial growth will be something around 5 percent and export growth will be negative.”

The government has already unveiled a 4 trillion yuan ($582 billion) stimulus package and cut interest rates by the most in 11 years as a global recession reduces demand for toys, textiles and electronics. A decline in exports would be the first in seven years and increase the risk that the slowdown in the world’s fourth-biggest economy will become a slump.

“It doesn’t really matter what China does to try to revive exports, they are going to be bad for the foreseeable future,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. “The key now is what can be done to boost domestic demand.”

Exports grew 19.2 percent in October.

Inflation slowed in November for the seventh straight month, central bank statistics head Zhang Tao said at the forum. Prices may have climbed less than 3 percent, Zhang said.

The CSI 300 Index of stocks closed 2.6 percent lower. China’s trade figures may be released as soon as today.

Weakest Growth Since 1999

Chinese leaders, meeting for three days in Beijing to set economic policy, may cut taxes and roll out measures to support the stock market, according to Merrill Lynch & Co.

Industrial-output growth of 5 percent would be the weakest since Bloomberg data began in 1999 and worse than the 7.2 percent median estimate of 14 economists in a Bloomberg News survey. Production rose 8.2 percent in October.

Economists exclude figures from January and February each year because of distortions caused by Lunar New Year holidays. Fan’s comments on exports come after a Chinese newspaper, the 21st Century Business Herald, said Dec. 7 that shipments may have fallen.

Taiwan and South Korea’s exports declined last month by the most since 2001 as the world recession took a growing toll on Asian economies. In the U.S., retail sales fell last month by the most since data began in 1969.

‘Worst Case Scenario’

China needs to prepare for a “worst case scenario” as the global slump deepens, Central bank Governor Zhou Xiaochuan said Dec. 4. Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

Labor disputes almost doubled in the first 10 months of this year as businesses closed and some owners fled, the official China Daily newspaper reported Dec. 5. Sacked workers rioted at a toy factory in Guangdong province last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”

The central bank has cut the key one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting lending by banks.

‘Aggressive’ Response

The “aggressive” monetary response is likely to continue, said Grace Ng, an economist with JPMorgan Chase & Co. in Hong Kong, who expects the rate to fall to 3.96 percent next year.

The yuan’s biggest one-day decline in three years on Dec. 1 also has prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.

The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week. In contrast, Commerce Minister Chen Deming said that the nation won’t rely on currency depreciation to help exporters who are suffering because of shrinking demand.

China should stick to a “gradual” approach on the currency and policy makers shouldn’t bow to pressure for a sharp fall, central bank adviser Fan said today. He is the only academic member of the bank’s monetary-policy committee.

China’s economy grew 9 percent in the third quarter, the slowest pace in five years.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net