China's Exports Slump While Stimulus Boosts Investment

Though China's exports plunged in February as the slump in global demand deepened, fixed asset investments in the country surged, signaling projects under China's stimulus package might have yielded some results in propping-up the slowing economy.

Customs statistics released on Wednesday showed that China's exports dropped 25.7% in Feburary, an acceleration over January's 17.5% fall.

Imports also fell 24.1%, though they picked up dramatically from January's 43% plunge, both China's exports and imports continued their slowing trend.

Despite falling exports and imports, China still recorded a trade surplus of 43.9 bil US dollars for the first two months of this year.

The worst hit export-oriented segment appeared to be the toy industry, which saw export value fall by 17.1% in February. The collapse of global demand for Chinese toys led to nearly half of Chinese toy factories being shut down last year. To make matters worse, India imposed a ban on toy imports from China in late January, though the ban was lifted in early March.

Meanwhile, the Chinese government had been continously increasing export rebate rates over the past few months, and which cushioned the export decline in some labor intensive industries, such as the shoe-making, which saw exports fell by a mere 2.3%.

China's imports of primary products saw huge drop of 44.8% in the first two months of this year, signaling that domestic demand remained weak.

Only the import of soybean and iron rose by 15.1% and 6% respectively, as plummeting global prices for both the commodities benefited China, the biggest world's consumer of the two.

Fixed Assets Spending Surge
Though the exports bill shrank, spending on fixed assets in January and February in Chinese cities surged 26.5 percent compared with the same period a year ago, according to data released by National Statistics Bureau.

The upward trend was driven by huge spending from state-owned enterprises, which took up nearly half of the total one-trillion-plus yuan invested in fixed assets for the first two months.

Spending on projects backed by the central government rose dramatically at 40.3%, among which, investment in railway and the transportation sector saw a stunning 210% growth.

The growth indicated that impact from the Chinese government's four-trillion-yuan stimulus package had kicked in. To halt the sliding economy, China had been trying to reduce its reliance on exports and foreign investments; instead, it tried to spur domestic demand through its army of state-owned firms and credit expansion.

Capital sources for fixed asset investments mainly came from domestic loans, which grew by 24.4%. While capital sourced from foreign investors and self-raised-funding expanded by 13.2% and 42.3% respectively.

The Chinese government had announced last week that the country's fixed asset investment growth target for this year was 20%. In support of the goal, the central government planned to invest 908 billion yuan this year in various infrastructure projects such as railway, low-cost housing and post-quake reconstruction.