CHINA: EXPORT GROWTH FALLING? / THE WALL STREET JOURNAL

HEARD ON THE STREET

September 10, 2012, 7:39 a.m. ET

Export Growth Falling?


ByTOM ORLIK

China's exporters have hit a wall in demand abroad, prompting the government to accelerate hole-digging at home.



The latest trade data paint a depressing picture of the state of the global economy. China's exports stumbled to a 2.7% year-on-year gain in August, barely improving on July's 1% growth. Flagging shipments to Europe topped the list of reasons—exports to the old world fell 12.7%, offsetting modest growth in sales to the U.S.




Import data are even more worrying. China's purchases from the rest of the world shrank 2.6% year-on-year, the first contraction in a non-holiday month since the end of 2009. Falling prices for imported commodities accounted for some of the dip, but not all of it. Crude oil import volume was down 12.5% year-on-year according to numbers from data provider CEIC.




There are signs of worse to come. The HSBC Purchasing Managers' Index for August shows new export orders declining at the sharpest rate since March 2009. Imports of components for China's factories fell 1.5% year-on-year, suggesting that manufacturers are destocking in anticipation of continued weak demand.



Falling export growth threatens to hit China where it hurts—the labor market. While official data shows no sign of mass layoffs so far, the PMI surveys show a fall in new orders is prompting some factories to reduce their head count.



With growth in foreign demand falling away, the government will do what it can to support demand—and employment—at home.



Property construction and infrastructure investment are both creeping up again. That might save growth from falling further in the final months of the year. But by increasing reliance on investment, China's policy makers risk digging themselves into a bigger hole.