MercoPress. South Atlantic News Agency

Chinese exports plunge 26% in February; domestic car sales up 25%

Chinese exports plunged by more than a quarter in February from a year ago as the world's third-largest economy was hit by a drop in demand for its goods. Exports dropped by 25.7% to 64.9 billion US dollars compared with the same month a year earlier, while imports fell by 24.1% to 60.1 billion according to official figures.

China’s trade surplus stood at 4.8 billion in February, compared with 39.1 billion the month before. The dramatic drop in exports came as a surprise to many analysts.

“This is clearly worse than expected. We were looking for a rise of 1.2%,” said Robert Subbaraman at Nomura International.

The continuing global economic downturn means that demand for Chinese goods around the world will continue to suffer, according the Chinese government.

The Chinese commerce minister said that the export slump is unlikely to end soon, warning of a “grim picture” for trade in the coming months.

“Exports will get worse before they get better. We could see contractions of up to 30%,” said Ben Simpfendorfer at RBS. “I do think the economy will struggle to bounce back,” he added.

“The export figure is set to stay in the red so long as the major economies around the world remain in recession,” agreed Sherman Chan at Moody's.

The drop in demand overseas has already caused a wave of factory closures and increased unemployment.

These latest figures will increase pressure on the Chinese government to push through its stimulus package to boost domestic demand, analysts said. It has already approved a plan of tax cuts and infrastructure spending worth 4 trillion Yuan (586 billion).

And figures show that China's investment in roads, railways and power grids rose by 26.5% in January and February compared with the same months last year.

But such massive government spending may not be enough to stimulate the country's economic growth in the near term.

“There is no way the fiscal stimulus can prop up growth until the second half of the year. The fall in private sector demand is too sharp,” said Mr Simpfendorfer.

Premier Wen Jiabao has announced a target of 8% growth for China's economy in 2009, but many analysts believe the figure will be closer to 5%.

On the bright side sales of new cars in China jumped by a quarter in February spurred by government measures to help carmakers.

February sales totalled 827,000 vehicles, a 25% increase on the same month last year and a 12% increase on the number sold in January. China slashed sales tax on small-engine passenger cars to try and boost sales of fuel efficient vehicles.

More cars are sold in China than in any other country in the world.

“The forecast is that the situation in March will be even better than February,” said Xiong Chaulin, at the China Association of Automobile Manufacturers, the body that released the sales figures.

Not so pleasant news came from the consumer prices index which for the first time since 2002 showed an annual fall in February.

The consumer price index dropped 1.6% from a year earlier, dragged down by falls in food prices but officials downplayed the threat of a deflationary spiral.

Consumers welcome falling prices, but a prolonged drop undermines company profits as people put off purchases.

China's inflation rate hit a 12-year high of 8.7% in February 2008 because of shortages of grain and pork.

Officials said this high base for comparison partly explained February's fall.

In the first two months of 2009, prices were down just 0.3% from a year earlier.

In the final three months of last year, China's economy expanded by 6.8% from a year earlier - below the 8% that officials view as the level needed to keep unemployment in check and avoid social unrest. Overall growth in 2008 stood at 9%, the first time since 2002 that the economy has expanded at a single-digit.