Sluggish start should prompt swift action

Policymakers find little cheer in bleak Jan-Feb trade indicators

On the surface, China's foreign trade is off to a bad start.

In January and February, the world's second-largest economy saw its trade grow 7.3 percent year-on-year to $533 billion (404 billion euros). Imports posted an annual growth of 7.7 percent and exports 6.9 percent. The single-digit growth can be described as sluggish since the country's imports and exports, for most of the times in the past decade, recorded double-digit growth.

The figures of the first two months are examined to avoid distortion of the holiday effect, as the Chinese New Year fell in January this year while it was in February last year.

The European Union, China's largest exporting destination, should be blamed for the slowdown. In January and February, Chinese exports to the bloc declined 1.1 percent, mostly because of the crisis in Italy, which imported 31.1 percent less of Chinese goods.

The sluggishness of China's trade also forced policymakers to cut the growth forecast.

In his government report released on March 5, Premier Wen Jiabao said he expected China's trade to grow by 10 percent this year. The country may also consider rolling out supportive measures to buoy trade.

Late last month, Zhong Shan, deputy minister of commerce, said China will, at the appropriate time, increase tax rebates for specific categories of goods, including high-tech and labor-intensive products.

He also said currency policies will be stabilized to help companies cope with exchange-rate fluctuations, hinting that the appreciation of the yuan will slow down, if not stop or reverse.

It is indeed necessary for China, which still counts a lot on exports to boost its economy and employment, to take precautions before the situation worsens. Timely support measures can help China avoid the mistakes made during the 2008 global financial crisis.

China was not fully prepared until the end of that year and it was a little late in rolling out emergency measures to bolster the nation's industries and exports.

This time, China seems to have learned a lesson. It is now rolling out various measures and signaling a stronger inclination to loosen the monetary policy to stimulate the economy amid the global slowdown. That is indeed an improvement.

But there is no need to fuss about the seemingly bleak trade figures of the first two months. Indeed, China's trade was not that bad.

First of all, Chinese exports to the United States in the two months gained 12 percent, showing that the demand from China's other major export destinations has been solid despite the global economic slowdown. In fact, China's exports to the US, for most of the months, showed double-digit growth since the 2008 financial crisis. The growth in US demand will help offset the impact of the slowing European demand.

Second, the imports of bulk commodities in the first two months remain robust, a good sign for future Chinese exports. Iron ore imports during the two months recorded a 5.7 percent increase over the same period a year ago to 120 million tons.

Raw material imports, including iron ore, are a barometer of China's exports in the coming months, because the country does a lot of processing trade. It imports raw materials and half-made products, processes and assembles them and then exports the finished products to gain a profit by taking advantage of the country's relatively low costs.

Growing imports of raw materials in the January-February period indicates that exports will also grow in the months to come.

Third, exports of electronics and machinery, the backbone of China's exports, registered a good performance. In fact, they grew 8.8 percent to $156 billion in the first two months. This is a remarkable achievement considering the global financial crisis.

Based on experience, as long as exports of these two categories of products continue to grow, the fundamentals of China's trade will not be shaken.

The author is a financial analyst in Shanghai.