* Feb exports tumble 25.7 pct, trade surplus hits 3-year low
* Economists see no respite any time soon for exporters
* Strong capital spending shows government stimulus working
By Jason Subler and Aileen Wang
BEIJING, March 11 China's exports tumbled in
February as the world's third-largest economy felt the full
force of the global financial crisis, but capital spending
accelerated in response to a massive government stimulus
With the world experiencing its deepest recession in
decades, pessimists said the slump in exports was unlikely to
end soon. Some said China could even record a trade deficit
But optimists saw fresh hope in the more forward-looking
investment data that China might pull out of its swoon faster
than other major economies, thanks to the government's
pump-priming and galloping credit growth.
"China has finally and spectacularly succumbed to the world
financial crisis on the export side, and it's difficult to see
why that would improve in the short term," said Paul Cavey, an
economist at Macquarie Securities in Hong Kong.
Exports in February slid 25.7 percent from a year earlier,
dwarfing forecasts of a 5.0 percent fall, while imports dropped
24.1 percent, close to projections of a 25.0 percent decline.
The resulting trade surplus was just $4.84 billion, a
three-year low, compared with $39.1 billion in January and a
record $40.1 billion in November, the customs administration
said. Markets had expected a figure of $27.3 billion.
Shanghai shares .SSEC fell 0.91 percent in reaction to the
trade data, bucking a regional rally, while the dollar recouped
early losses and rose across the board [.SS] [USD/]
(For a graphic on trade, click on
Chinese exporters had hitherto fared better than their
competitors in places such as South Korea and Taiwan,
encouraging conjecture that cost-conscious shoppers in the West
were trading down to cheaper made-in-China goods.
But Isaac Meng, an economist with BNP Paribas in Beijing,
said it was unrealistic to expect China to remain immune to the
sharpest drop in global trade in 80 years.
"That's a terrible number. It will have a pretty big impact
on Chinese domestic demand," he said of the export drop, which
was the steepest since bankers started keeping records in 1993.
"Probably 60-70 million workers directly work in these
export sectors, so there will be secondary impacts on capital
expenditure, employment and consumption," he said.
The government estimates that 20 million migrant workers,
who labour mainly in export factories and in construction, have
lost their jobs so far because of a collapse in global demand
and a slump in the domestic real estate market.
"Any recovery in the export sector will not take place until
the third or even the fourth quarter of this year," said Mei
Xinyu, a researcher with the Ministry of Commerce.
China has not released official statistics on the
contribution of net exports to gross domestic product last year,
but Ben Simpfendorfer with Royal Bank of Scotland in Hong Kong
estimates that they contributed just 0.8 percentage point of
China's 9.0 percent GDP growth last year.
Tao Wang with UBS in Beijing estimates that the contribution
was twice as great, at 1.6 percentage points -- still
significantly less than the contribution of consumption and
Figures released earlier by the National Bureau of
Statistics suggested that the government is already enjoying
some success in its drive to make up for the shortfall in
exports by boosting capital spending.
Investment in urban areas in fixed assets such as roads,
power plants and apartment buildings rose 26.5 percent in
January and February from a year earlier, easily beating market
forecasts of a 21.5 percent increase. [ID:nPEK189265].
"The figure shows the economy is doing very well and
Beijing's stimulus package is working," said Jiang Chao, an
analyst at Guotai Junan Securities in Shanghai.
In all of 2008, urban fixed investment was up 26.1 percent.
The combined number smooths out swings due to the Lunar New
Year, which fell in January this year but in February last year.
UPSIDE, DOWNSIDE RISKS
Yu Song and Helen Qiao at Goldman Sachs said the rebound in
investment came sooner than they had expected, increasing the
chances that domestic demand will be stronger than they thought.
"Downside risks from external sectors will likely
counterbalance the increasing upside risks we foresee from the
government-led investments in our growth forecast," they said in
a note to clients.
Detailed figures showed the initial impact of the 4 trillion
yuan ($585 billion) stimulus plan unveiled by Beijing on Nov. 9.
Spending on projects backed by the central government rose
40.3 percent in the first two months, while investment in
transport, including railways, rose a whopping 210.1 percent.
"There's no doubt that fixed-asset investment will be on an
upward trend in the first half of this year, given the capital
being injected into infrastructure and public housing," said Lu
Zhengwei, chief economist at Industrial Bank in Shanghai.
In addition, bank lending is surging; cement and steel
output rose 17 percent and 2.4 percent, respectively, in the
first two months; the decline in power demand slowed; and car
sales topped 800,000 in February for the first time in eight
"I am hoping that China can lead the world out of this
crisis first," Jeffrey Sachs, adviser to U.N. Secretary General
Ban Ki-moon, told Reuters in Dar Es Salaam, the Tanzanian
commercial capital. [ID:nB667761]
But other figures suggest China is not out of the woods yet.
Inventories of raw materials such as coal have started to
mount again; a rise in prices of steel proved to be short-lived;
and investment in the glutted property sector was just 1.0
percent higher than in the first two months of last year, the
government said on Wednesday.
(Reporting by Langi Chiang, Simon Rabinovitch, Jason Subler,
Zhang Shengnan, Zhou Xin, Aileen Wang and Michael Wei; Writing
by Alan Wheatley; Editing by Ken Wills and Neil Fullick)