WRAPUP 1-China downcast on exports as EU debt woes bite

* Europe debt woes, emerging market tightening to hit

* Room for further export growth limited; situation “grim”

* Outlook for retail sales brighter

By Zhou Xin and Ben Blanchard

BEIJING, July 20 (BestGrowthStock) – China sounded a gloomy note on
Tuesday about its export prospects, warning in particular that
belt-tightening by deeply indebted European Union governments
would dampen demand for the country’s goods.

Calling the trade picture “still complicated and grim”, the
Ministry of Commerce said high growth in exports in the first
half would give way to slow growth in the second half.

“The sovereign debt crisis has made many EU countries shift
to fiscal austerity from fiscal expansion, which will greatly
restrict consumption and investment growth in the EU,” the
ministry’s spokesman, Yao Jian, told a news conference.

Cheap, labour-intensive products would be less vulnerable
to drooping European demand than more expensive, discretionary
goods, he added.

Spain, Italy, Germany and non-euro member Britain are among
EU countries that are tightening their budgets after Greece had
to be bailed out in April, raising a red flag about the
sustainability of public finances across Europe.

Furthermore, Brazil, India and other emerging economies
have started to tighten monetary policy, the Commerce Ministry

“The room for the further growth of Chinese exports is
limited,” Yao said.

As a result, the ministry would keep in place policies
aimed at supporting external demand for Chinese goods,
including retaining export tax rebates.

Chinese exports grew 43.9 percent in June from a year
earlier, beating forecasts, after 48.5 percent year-on-year
growth in May. However, imports have also boomed, meaning net
exports barely contributed to first-half growth in gross
domestic product, according to the National Bureau of

Export growth in the second half of this year will slow to
just 16.3 percent, giving full-year growth of about 24.5
percent, the State Information Centre, a leading government
think tank, said in a report published on Monday.


Wang Jun, a researcher with the China Center for
International Economic Exchange, a think tank under the
National Development and Reform Commission, agreed that China
could not escape the fallout of the euro zone’s debt troubles.

“I think growth in China’s exports will show a big
slowdown, especially in the fourth quarter. It’s very likely
that we’ll see single-digit growth by the end of this year,” he
told a forum.

A staunch defender of China’s exporters, the Ministry of
Commerce has a tendency to stress the difficulties facing the
sector rather than to point out that China has considerably
increased its share of global markets during the economic

But the Ministry of Industry and Information Technology
also raised questions about the robustness of China’s export
rebound due to the weak foundation of the world recovery.

“Although the economy is heading in the right direction,
there are many difficulties and problems,” Zhu Hongren, a
spokesman for the ministry, told a separate news conference.

A lot of small export firms were experiencing financing
strains, while wages had gone up by more than a fifth in the
manufacturing strongholds of the Yangtze and Pearl River

Like exports, factory growth would slow over the rest of
2010 because of a high base of comparison in 2009, the ministry

But Zhu said the moderation would help China to upgrade its
economy and lay the basis for more sustainable growth.

“The slowdown is not only appropriate, but will also help
to facilitate adjustment in China’s industrial structure and
economic growth,” he said.


Beijing is redoubling its efforts to weed out obsolete,
energy-guzzling plants in a drive to meet ambitious
energy-intensity targets by the end of 2010.

China has overtaken the United States as the world’s
largest energy consumer, according to the International Energy
Agency, an assertion denied on Tuesday by a Chinese official.

Despite the expected slowdown, full-year factory output
growth may be higher than the 11 percent targeted at the start
of 2010, the Ministry of Industry said.

The Ministry of Commerce was also optimistic about consumer
spending. Retail sales would keep growing rapidly over the rest
of 2010 thanks to rising incomes and government policies to
encourage consumption, the ministry said.

Overall, economists expect a further slowdown in economic
growth, which moderated to an annual rate of 10.3 percent last
quarter from 11.9 percent in the first three months of 2010.

“With growing signs of economic slowdown, we believe that
the government will now start to discuss possible policy
adjustments,” Ha Jiming and Xing Ziqiang, economists at China
International Capital Corp, said in a report.

The government could accelerate the approval of investment
projects, relax curbs on property speculation and loosen its
liquidity controls in addition to keeping interest rates and
banks’ required reserves unchanged, they said.

Stock Market Trading

(Additional reporting by Aileen Wang, Chen Aizhu and Langi
Chiang; Writing by Alan Wheatley; Editing by Tomasz Janowski)

WRAPUP 1-China downcast on exports as EU debt woes bite