The news was like a Christmas stocking filled with coal: The General Administration of Customs announced that more than half of China’s toy exporters went out of business in the first seven months of 2008. The exporters, mostly small businesses, had been hit hard by a rising renminbi and rising labor and production costs.
Toy exports to the US alone fell 5.2% in the period, helping to push total toy export growth down 21.8 percentage points to an anemic 1.3%.
It wasn’t just toy exports that were falling. Lower commodity prices helped to reduce the growth of China’s trade surplus, which was up 12% year-on-year in September to US$82 billion. Some economists fear that reduced commodity prices are only part of the reason for slower surplus growth, which they take as a sign of a cooling Chinese economy.
There are more direct signs: China’s economy grew by 9% in the third quarter, the lowest level in five years. UBS reduced its forecast for China’s GDP growth in 2009, to 8.0% from 8.8%, and for 2008, to 9.6% from 10%. Fortunately for policy makers pushing for pricing reform, inflation decelerated to 4.6% in September.
Premier Wen Jiabao promised government action to ensure steady growth in the face of the global financial crisis.
So far, in addition to moves targeting the stock markets specifically, there have been two interest rate cuts in the span of a month. Export tax rebates were also raised to boost exporters.
But some have questioned whether these moves will effectively encourage economic growth. Critics say the rebates won’t help to increase demand.
That’s more bad news in a grim business climate. The National Bureau of Statistics said the performance of Chinese firms has fallen to levels last seen during the 2003 SARS crisis.