* Shock drop in exports, imports from year earlier
* China pledges to cut taxes, boost spending
* Factory-gate inflation plunges
By Langi Chiang and Zhou Xin
BEIJING, Dec 10 China's exports and imports
shrank unexpectedly in November as the world's fourth-largest
economy slowed in a startlingly abrupt way in response to the
global credit crunch.
The drop in exports from year-ago levels was the largest
since April 1999, while the decline in imports was the steepest
since monthly records kept by bankers began in 1993.
Other Asian export power houses, including South Korea and
Taiwan, had already reported a drop in shipments last month as
the shock to confidence that followed the collapse of Lehman
Brothers in mid-September reverberated through the world
Economists had expected China's exports to rise 15 percent
and imports to be up 12 percent compared with November 2007. But
the data showed exports fell 2.2 percent from a year earlier and
imports dropped by 17.9 percent.
"Global demand for Chinese products is vanishing," said Gene
Ma, an economist at China Economic Monitor, a Beijing
consultancy. "Secondly, the credit freeze in importing countries
has made it hard for Chinese exporters to sell abroad."
China's leaders wrapped up a three-day strategy meeting on
Wednesday by setting steady growth as their top objective in
2009, pledging to ramp up public spending and cut taxes.
"At present, China's economic operation is facing greater
difficulties," a state radio report on the meeting said.
"Downward pressure on the economy is increasing."
Because imports fell more sharply than exports, China's
trade surplus actually soared to an all-time high of $40.1
billion last month, eclipsing the previous record of $35.2
billion set in October, the customs administration reported.
A plunge in the price of oil and other commodities cut
China's import bill, but economists said the drop also reflected
spreading weakness in home-grown demand as businesses and
consumers battened down the hatches.
"It's just a start. Exports and imports will continue to
fall in the coming months, probably until next June," said Zhang
Shiyuan, an analyst with Southwest Securities in Beijing.
The government has been unusually frank in acknowledging its
worries that the economic downturn will cause unemployment to
soar, jeopardising social stability.
Export firms employ tens of millions of rural migrants. With
factories closing by the thousands in southern China, many of
these workers are heading home much earlier than usual for the
Lunar New Year, which falls in late January.
"With few policy options with which to revive exports,
Chinese authorities are understandably focusing on measures to
boost domestic demand and push forward with infrastructure
initiatives, in an effort to absorb some of the migrant
workforce," Jing Ulrich, head of China equities at J.P. Morgan,
said in a note to clients.
The government launched a 4 trillion yuan ($586 billion)
stimulus plan on Nov. 9 to boost infrastructure spending over
the next two years and the central bank followed up on Nov. 26
by slashing interest rates by 1.08 percentage points -- four
times its usual margin.
A burning question among economists is whether Beijing will
go one step further and engineer a drop in the value of the yuan
to give exporters more of a competitive edge in global markets.
The Chinese currency has risen sharply in value this year
against a basket of currencies of its main trading partners.
The central bank raised eyebrows last week by allowing the
yuan to weaken modestly against the U.S. dollar. Many economists
cautioned against reading too much into the move, but others are
not so sure.
"The government is likely to launch new policies soon to
help the export sector, and that may include a change in
exchange rate policy," said Zhu Jianfang, an economist with
CITIC Securities in Beijing.
In another sign that the economy has simply run into a wall,
the statistics office reported earlier that wholesale price
inflation collapsed to 2.0 percent in the year to November from
October's reading of 6.6 percent. [ID:nPEK42337]
Economists polled by Reuters had expected a rate of 4.4
"The situation is quite severe. We are slipping into a
deflationary recession risk pretty fast," said Isaac Meng, an
economist with BNP Paribas in Beijing.
Reports from the leadership's economic meeting made no
mention of a growth target for 2009, but state media have said
Beijing was determined to "protect eight" -- a reference to the
8 percent growth rate widely thought necessary to create enough
jobs for the millions entering the workforce every year.
The economy expanded 11.9 percent in 2007, its fifth
straight year of double-digit growth. But the pace has slowed
sharply in recent months and the World Bank is forecasting just
7.5 percent growth in 2009.
> For comments on the trade data.[ID:nPEK354260]
> For comments on producer prices.[ID:nPEK40192]
(Reporting by Eadie Chen, Zhou Xin, Langi Chiang and Simon
Rabinovitch; Writing by Alan Wheatley; editing by Stephen