The impact of the global financial crisis on China became clear on Wednesday when the government revealed that exports fell in November for the first time in almost seven years.
With demand in many of its main markets slowing sharply, Chinese exports declined 2.2 per cent from a year earlier. Imports also fell 17.9 per cent from a year earlier, according to Chinese customs figures, prompting the government to announce plans to further boost the economy.
The Chinese data shocked economists. The figures were far below forecasts, even in the light of sharp slumps in exports in November from both Taiwan and South Korea.
“This is the worst collapse in Chinese exports since 1999 and is probably just the beginning of a prolonged export contraction,” said Isaac Meng, economist at BNP Paribas.
The drop in imports, the biggest since the early 1990s, helped push the monthly trade surplus to a record $40bn (€31bn, £27bn), the fourth month in a row that the surplus has broken records.
The government pledged on Wednesday to do everything it could to maintain “stable, healthy” growth next year. At the conclusion of the three-day Central Economic Work Conference, an annual meeting of top policy-makers, officials said they would boost public spending in order to promote domestic demand.
A report on state radio about the meeting said the government had reaffirmed its policy of keeping the exchange rate “basically steady”, but would take other measures to deal with falling domestic demand.
The slump in exports will increase concerns that Beijing will adopt new policies to protect exporters that might inflame trade tensions. However, Chinese officials have said they are committed to avoiding a new round of protectionism in the global economy.
The government also released figures showing producer price inflation collapsed in November, falling to 2 per cent in the year to November, compared with 6.6 per cent in October.
Some economists said the numbers indicated China could be heading for a period of deflation, especially as falling demand for Chinese exports could encourage some manufacturers to try to offload their products at home.
“Deflation is likely to emerge as early as the first quarter of 2009,” said Qu Hongbin, chief economist for China at HSBC.
“The central bank must come out with strong and quick policy responses to prevent deflation expectations from being built in.”
Until last month, China’s exports had held up much better than most observers had expected, increasing by 19 per cent in October compared to the same month last year.