OPINION> Commentary
Fix export engine
(China Daily)
Updated: 2008-11-04 07:50

It is a pity that Smart Union, a Dongguan-based toymaker, went bust just two weeks before policymakers came to the industry's rescue.

Starting yesterday, the Chinese government raised the export tax rebate on toys from 11 percent to 14 percent, giving a much-needed shot in the arm of struggling toy exporters.

With nearly 7,000 workers laid off overnight, Smart Union's bankruptcy in mid-October seems to be dramatic enough to highlight the mounting pressure on Chinese exporters, especially the labor-intensive ones.

Yet, as a China Daily reporter has found out, the sudden bankruptcy of this large exporter has more to do with mismanagement and failed investments than with shrinking overseas orders.

It will be misleading to take a single case of bad financial discipline as an evidence of the growing challenge confronting the whole export sector.

But closures of more Chinese exporters do appear possible nowadays as the looming global slowdown increasingly undermines the country's export growth.

China's exports managed to grow 22.3 percent year-on-year in the first three quarters, but they were 4.8 percentage points lower than in the same period last year.

Worse, as orders from Europe, Asia and Africa begin to shrink as sharply as demand from the United States in the past month, the country's export and import growth is poised to fall even more rapidly.

It is this gloomy picture of the export engine that has justified China's recent policy changes to stimulate export growth.

Capitalizing on the country's comparative advantage of low labor cost, the export sector itself has long served as a powerful growth engine for the Chinese economy while stoking a large amount of export-led investment.

However, the country's need to pursue sustainable development and reduce external imbalance has made it necessary to wean itself off dependence on exports and investment for growth.

By gradually raising environmental standards and cutting tax rebates for energy-consuming and polluting exports, policymakers have tried hard to goad exporters to go up the value chain.

Nevertheless, the current global financial crisis and economic slowdown have made the course of industrial upgrade more painful than most Chinese exporters had expected.

As our report on the change in Dongguan shows, local governments have gone all out to upgrade their industrial mix while Chinese enterprises are either relocating or renovating themselves to sharpen their competitive edges.

The shock of the world economic downturn does require stopgap measures to buffer a too steep export fall. But it should not stop the country's efforts to overhaul the export engine in line with its long-term growth strategy.

(China Daily 11/04/2008 page8)