Stable but slower growth

The unexpected plunge in China's export and import growth in July has brought home the harsh reality that the ongoing global economic correction may go deeper than previously anticipated.

The country's exports rose just 1 percent year-on-year, which is in sharp contrast to June's 11.3 percent, according to the National Bureau of Statistics. Import growth also fell, to 4.7 percent from the previous month's 6.3 percent. Both figures fell short of market forecasts even though they had been prepared to embrace a slower growth in trade.

Such low export growth, the lowest since January and almost the worst since November 2009, has been hard for the market to swallow, and the lingering European financial crisis and China's domestic economic slowdown offer no grounds for optimism.

Europe is the main culprit for China's export growth slump this time. Shipments to the European Union dropped by more than 16 percent year-on-year as the continent's debt crisis lingers on.

The market is awaiting the outcome of gambits to save Greece from bankruptcy, which will occur in September. But even if Greece successfully passes through the current crisis, there are a lot more troubles for the EU to tackle. It is almost certain that the European economy will become trapped in deflation for a pretty long period of time.

Meanwhile, the US economy, which is in a better shape than Europe's, is recovering: but at a very slow pace.

Both are not good news for the Chinese economy, which still relies heavily on external demand. The reduction in foreign demand may be more serious than we anticipated.

What is making things worse is that data released last week indicate China is also encountering faltering domestic demand.

Monetary easing and fiscal support have often been adopted to offset economic weakening in the past. But China's massive stimulus measures three years ago have pumped too much liquidity into the economic system, leaving less room for it to adopt such measures this time.

It is highly possible, therefore, that the Chinese economy may stabilize, but grow at a slower pace in the coming years.

China played a major role in bolstering global growth in the wake of the global financial crisis. But now it may have to hold its guns, which is not good news for the crisis hit world economy.

(China Daily 08/13/2012 page8)