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Tuesday, January 12, 1999 Published at 15:21 GMT

Business: The Economy

China's exports collapse

Foreign investors like Starbucks coffee are still bullish about China

Asia's economic crisis has hit China's export trade hard.

China has paid the price for not devaluing its currency, with export growth slowing to 0.5% year-on-year, the lowest annual rate for 15 years. Basing the figures on volume rather than price, exports actually declined.

[ image: China will have to focur more on domestic spending]
China will have to focur more on domestic spending
In the past few years, Chinese exports have been growing fast. They improved 20% last year, but the decision to keep China's currency, the yuan, at the fixed rate of 8.28 to the dollar, made many of its products uncompetitive in Asia.

Asia trade suffers

Exports to the rest of Asia fell by 9.9% to $98bn as crisis-torn economies like South Korea and Thailand cut back dramatically on imports.

China was able to compensate to some extent by selling more to the United States and Europe, with exports rising 16.2% and 18.1% respectively.

Part of the reason was that other Asian countries were unable to provide export credit guarantees because of the depth of their financial crises.

This year is likely to be different, and the lower priced goods from the rest of Asia are likely to hurt Chinese exports to the West even more.

"We are still quite cautious if not negative on China's export outlook, particularly in the first half of the year," said Eddie Wong of ABN AMRO.

Foreign-based exports strong

One bright spot was exports by foreign-based companies in China, which saw exports grow by 8% to $81bn.

These companies, which often export branded finished goods, are less vulnerable to competititon from lower-priced commodity exports from other Asian countries.

Shanghai, which is one of the centres of foreign investment in China, also showed strong export growth of 12%.

Focus on domestic growth

The Chinese authorities have admitted that the domestic economy will have to be the focus of economic growth in 1999. They plan to boost spending on infrastructure projects to compensate for the loss of exports.

China managed a growth rate of 7.8% last year, despite the fall in exports, by spending more on the domestic economy. However, it now faces tough choices about whether to continue subsidising loss-making state firms or close them down, leading to mass unemployment in the urban areas.

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