April 13,2009

Export Plummet Shock: A Guangdong Tiger Under Water

By CSC staff, Shanghai
Dongguan, the factory floor of "Made in China" and a leading city of Guangdong Province’s Pearl River Delta, China’s massive export engine, is being hit hard by plummeting exports. For the first time in its history, growth has registered in the negative numbers.
 
The rapid slowing of Guangdong’s economy, quite an unpleasant surprise, was revealed by Guangdong Governor Huang Huahua at an April 11 meeting. Preliminary calculations have Guangdong’s GDP growing at 5% clip in the first two months of this year and by 5.5% in this year’s first quarter, a full 5 percentage points lower than in the same time last year.  Industrial production value has rebounded a little, consumption is growing stably, and investment growth is still building.
 
According to Liu Zhigeng, secretary of the CPC Committee of Dongguan, in the first quarter of this year GDP dropped 2.5%, year on year, and 2.3 percentage points under the decline in January and February. Production value in Dongguan, dubbed one of Guangdong’s "Four Tigers", totaled 79.855 billion yuan, up 16.2%, year on year, but 18.7 percentage points lower than the same period last year.
 
Lin Jiang, professor at Sun Yat-Sen University and a consultant to the Dongguan municipal government, said 2009 was going to be a difficult year for the city, though he doesn’t think this necessarily means an economic recession. At present it is hard to tell to what extent Dongguan is being affected by the financial crisis. "If by June the economy continues to decline, we may be able to say that Dongguan is experiencing a recession."
 
Foshan and Guangzhou, the provincial capital, are in comparatively better shape. In the first quarter of the year, GDP of five Guangdong cities, including Guangzhou, Foshan, Zhaoqing, Huizhou, and Jiangmen, were higher than average in the province. Foshan, with 11% growth, is enjoying the highest GDP growth, followed by Guangzhou with 8%.
 
Still, Huang Huahua made clear at the meeting, the overall situation is quite severe and Guangdong will not hit its 8.5% target for the year without great determination. The Pearl River Delta, contributing 80% of Guangdong’s total GDP, is especially crucial.
 
Guangdong’s import and export dropped 25.9%, year on year, in January and February, and 22.9% in the first quarter. Guangdong’s foreign trade dependence is as high as 155%, more than double China’s average.
 
Guangdong’s economic growth slowed in 1989 and 1999, when the annual economic growth was 7.2% and 10.1%, respectively, while its average annual growth averaged 13.8% between 1979 and 2007, and 14.5% between 2003 and 2006, staggeringly fast. 
 
An official in charge of economic affairs said that Guangdong was in fact seeing some signs of bounce, in terms of fixed asset investment and bank loans. "But the growth is quite limited, and it is still early to judge whether it is a real rebound."
 
According to Peng Shu, an expert at the Guangzhou Academy of Social Sciences, Guangdong may still be able to realize the 8.5% GDP growth, but it will not be easy.  It is still hard now to judge to what extent a rebound in the second half of the year can offset the first quarter’s decline. The biggest problem is that whatever lift in internal demand Guangdong may gain may not be enough to offset external demand decline. As it is, the real driving force for economic recovery will still have to come from foreign trade.
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