China's industrial slowdown is showing signs of worsening, as the country's trade slump deepened further in August in the face of weaker demand from overseas buyers.
Once seemingly indomitable as the world's workshop, China is now facing its most protracted decline since the global financial crisis. Overseas shipments fell 5.5 per cent last month compared with a year earlier. That has dragged total exports 1.4 per cent lower in dollar terms in the first eight months of the year.
It is a sign that the country's sprawling manufacturing sector is losing competitiveness: Labour costs are rising relentlessly and the currency, the renminbi, remains relatively strong despite its devaluation last month. Despite the currency move, Chinese goods are notably more expensive for foreign buyers than they were even a year ago.
At the same time, China's imports are falling even more sharply, declining last month for the 10th month in a row, with a drop of 14 per cent by value.
Economists say sharp drops in global prices for commodities like oil and industrial metals have propelled the decline in import value. But the sheer volume of imports of crucial industrial raw materials like coal, iron ore, copper, aluminum and steel has also fallen this year. The declines are a clear sign of weakening domestic demand in China as a slump in manufacturing and new housing construction drag economic growth.
Beck Cai, a sales manager at the Shanghai Steel Fashion Industrial Company, a manufacturer and exporter of prefabricated steel structures, said his company's business in August dipped as much as 40 per cent compared with a year earlier.
"I don't think it has anything to do with the way we operate; it is mainly that the overall environment is slowing down," Cai said. "As far as the recent devaluation of the renminbi is concerned, it is still too early to tell how it will impact our business."
China's leadership last month made the surprise decision to devalue the currency by about three per cent, the renminbi's sharpest drop in two decades. But China's central bank has since intervened on a huge scale, propping up the currency further by selling dollars for renminbi.
As a result of this intervention, China is burning through its stockpile of foreign exchange reserves at the fastest pace on record. Reserves fell by nearly $100 billion in August alone, although that still leaves $3.56 trillion, the central bank reported on Monday.
Still, analysts say the recent devaluation was probably too small to help China's exports.
"The renminbi has appreciated substantially in real effective terms against a basket of currencies in the past year, which in relative terms makes China's exports less competitive than in the past," Ding Shuang, the head of greater China economic research at Standard Chartered, wrote in an email. "But China still registered a huge trade surplus and there is no reason for significant devaluation against most currencies."
China's trade surplus with the rest of the world has surged, rising to $365 billion in the first eight months of the year. This is because imports are declining more sharply than exports.
But the trade surplus also helps soften the blow of investors' withdrawing money from China with expectations that the renminbi will weaken further.
Analysts at Nomura calculate the pressure on China's currency to weaken is stronger now than at any time since 1994, when the country adopted its modern exchange rate system and devalued the currency by a third.
"Given the Chinese economy's weak growth and deep-seated structural challenges, we expect renminbi depreciation pressure to remain," the Nomura analysts wrote in a research note on Tuesday. "However, unlike in the late 1980s and early 1990s, we expect this pressure to be moderate and prolonged, rather than sudden and severe."
One potential complication in the August trade figures may be the exchange rate used by the customs administration. The administration said exports totalled $196.883 billion in dollar terms and 1.204 trillion renminbi in local currency terms.
That implied an exchange rate for August of 6.116 renminbi per dollar, the same implied rate used in the July trade figures. But China devalued its currency on August 11, and the average exchange rate in August, according to the central bank's official fixing, was 6.3056 renminbi per dollar.
The reason for the discrepancy was unclear. But it raised the possibility that China's actual decline in exports in renminbi terms was not as bad as the 6.1 per cent decrease reported - or that the real decline in dollar terms might have been worse than the 5.5 per cent drop reported.
Representatives of the customs administration's press office could not be reached for comment after normal working hours.
© 2015 The New York Times News Service
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