Dongguan, which leads the development of private enterprises in China, has witnessed the failure of some businesses recently. Some people predict more enterprises will close down in Dongguan in the second half 2011. According to the latest statistics from China Customs, Guangdong, the largest foreign trade province in China, has a total import and export value of US$513.4 billion in the first seven months, up 24% from a year ago. However this growth is still 1.1 percent lower than the national average (25.1%), marking that the cumulative import and export value growth of Guangdong is below national average for the first time in 2011. In August, the trade value growth of Guangdong dropped to 22.4%.
Some say China is facing unprecedented challenges as the world’s workshop, and the Dongguan model is coming to an end. However, Chen Yaohua, chairman of Dongguan Textile and Clothing Industry Association, estimated that no more than 10% of private enterprises in Dongguan went bankrupt or closed in 2011. Zhu Suiwen, deputy director of Guangdong Province Statistics Bureau, said, though in the first half of 2011, the production activities and profits in Dongguan have reduced, relevant data shows there is no wave of business failures. The slow down of growth in trade value comes from several factors, such as the earthquake in Japan, RMB appreciation and comprehensive rising costs. However, news anchor from Ministry of Commerce Mr. Shen Danyang said that since there are many uncertainties in the international economy, added by rising costs for labor, raw materials and other domestic production elements, some enterprises in the Pearl River Delta region encounter operational difficulties.
Chinese enterprises, especially export enterprises, suffer great pressure in today’s market. For one thing, export enterprises face rising costs for energy, raw materials and human resources and this is further exacerbated with a worsening export environment. For another, RMB appreciation squeezes the profits of export enterprises. Foreign trade enterprises encounter pressure from both inside and outside, namely the rising costs and RMB appreciation, which challenges the traditional production mode.
The economic dependence of Asia on Europe is weakening, but it has not been fully decoupled. Domestic and foreign financial institutions have reduced the estimated GDP growth for 2011 under the influence of the European debt crisis and downgrade of the sovereign credit rating of the United States. Furthermore, it is predicted that net exports will have little contribution this year. Analysts think if the global market continues to be weak, then stimulating domestic demand and reducing the dependence on exports is the major looming challenge for China. Liu Ligang, a Hong Kong based economist from ANZ Bank, said that according to China’s import and export data, the Chinese economy is still on the track of smooth development despite the global economic slow down. The growing imports demonstrate that domestic demand in China is still strong, and the risk of a hard landing has been drastically reduced. Citigroup predicts that China will have an economic growth higher than 9% in 2011.
However, worsening foreign demand in the second half of 2011, appreciating RMB and recent hikes in commodity prices are severe challenges foreign trade enterprises in China face. The transformation of “Made in China”to “Made for China” has to be accelerated. For enterprises, the production and operation challenges can objectively boost production enterprises to accelerate the upgrade and transformation, and improve market competitiveness. Mei Xinyu, senior researcher from the Research Institute under the Ministry of Commerce, said, China is improving the structure of export commodities, while expanding export range and he believes that China can achieve double-digit growth in export this year. At the same time, he stressed that export growth not only drives economic development, but also brings pressure to macro economic control in China, especially for inflation, as it is an important channel for imported inflation. This issue of Special Report will explore the challenges for China’s foreign trade, and make insights to the solutions.