By Chao Deng
GUANGZHOU, China--As China's economic growth weakens faster than
expected and uncertainty from the trade fight with the U.S. casts a
shadow over business, a surprising driver has been exports. But
that may soon peter out.
American clients of Ningbo Frank Electric Co., a Chinese
manufacturer of kettles and other household appliances, have been
placing orders several months in advance, salesman John Zheng said.
"It all looks so good at the moment," he said. "But it won't
continue."
China released a gloomy report card Friday on its economy's
performance, with the rate of economic growth sliding to 6.5% in
the third quarter, the slowest pace since the global financial
crisis. Just ahead of the release--and after Chinese stocks fell 3%
Thursday, taking losses to nearly 25% since the start of the
year--the country's top financial regulators all came out with
comments to calm investors.
The rare joint effort was followed up by an interview published
by the official Xinhua News Agency with China's economic czar, Vice
Premier Liu He, who played down the impact of the trade conflict
and suggested low stock prices represent a buying opportunity.
"It shows how concerned they are about the economic outlook and
the bearishness across the market," said Zhou Hao, senior
emerging-markets economist at Commerzbank.
For months, China's economy has been trending down, with a
variety of measures including fixed assets, car sales and retail
sales slackening. Meanwhile, firms have been gearing up for U.S.
tariffs on Chinese products to hit their bottom lines. That doesn't
appear to have happened yet, as U.S. firms have piled up purchases
ahead of the tariffs. The usual burst in orders ahead of the
American holiday season has also helped.
Chinese exports grew at an average monthly pace of 11.7% during
the third quarter, buoying the economy's weak performance. "Thanks
to frontloading, negative impact from the trade conflict with the
U.S. is limited so far," said Grace Ng, an economist with J.P.
Morgan.
But Washington has said it will raise tariff rates on some $200
billion worth of Chinese goods to 25% next year, from the current
10%, and is threatening to impose tariffs on an additional $257
billion of Chinese products. Analysts say it is only a matter of
time before the rush of advance orders fizzles and clients begin
canceling purchases all together.
Macquarie Capital Ltd. estimates that Chinese export growth will
decelerate to between 5% and 10% in the coming months. J.P.
Morgan's Ms. Ng predicts exports will start weakening in 2019,
knocking overall economic growth to as low as 6.1% next year.
At the annual China Import and Export Fair in the southern city
of Guangzhou this week, thousands of Chinese vendors showed off
their wares, including electrical appliances, lighting, building
materials and hardware. Prospective vendors flooded the exhibition
halls of the Canton Fair, as it is known, suggesting health for
global trade yet.
But many Chinese firms that rely on the U.S. market are worried
about difficult days ahead. American clients of RainMin
Illumination Ltd., a manufacturer of LED bulbs that appear in light
installations on display at SeaWorld theme parks and festivals such
as Burning Man and Coachella, were pushing back orders and emailing
to discuss whether the firm will lower its prices.
"It's the biggest challenge since we set up 15 years ago, even
bigger than the 2008 crisis," said Liu Xiaoyan, one of the firm's
managers.
Mr. Liu eagerly exchanged business cards with prospective buyers
from India, although once they left he lamented that their market
isn't developed enough to demand the sort of huge installation
projects the firm's LED bulbs serve. "It's impossible this time
around."
At a booth selling wine refrigerators, Lu Tao worried that
revenues of his family business could fall up to 40% this year. He
said he is planning to start selling directly to U.S. consumers on
Chinese e-commerce website Taobao, cutting out American
distributors. The higher prices he could charge would make up for
the tariff costs. "A fridge I sell for $300 now can go for $1000,"
Mr. Lu said.
Analysts expect Chinese leaders to move to prop up growth should
exports, investment or consumption weaken too much. Keeping the
economy at a steady and relatively fast pace is seen as crucial for
the Communist Party to maintain social stability. Beijing has time
and again stimulated the economy through fiscal and monetary
measures, and in recent months has given financial markets more
liquidity, while letting the Chinese yuan depreciate to assist
Chinese exporters. Policy makers have also successfully urged local
governments to issue more bonds, in the hope they will spend on
projects again.
Chinese and American businesses are maneuvering to soften the
blow of the trade fight. At the export fair, some Chinese vendors
said they could make up for some reduction in U.S. orders by
selling to other countries. Others boasted that their clients were
already thinking about ways to reroute shipping via Taiwan, Mexico
and other places not subject to higher U.S. tariffs. A common
pitch: China remains No. 1 in the world at delivering well-made
products at competitive prices.
Still, analysts say China's economy can't avoid the headwinds as
the trade fight chips away at business confidence. They aren't
optimistic that tensions between the two countries will ease, even
as President Xi Jinping and President Trump prepare to meet at the
end of November.
Sandi Kegebein had traveled to Guangzhou from Wisconsin in the
hunt for Chinese products for her sourcing company, SC Global
Sourcing Inc. Her company has already put in next spring's orders.
"We are buying as much as we can," Ms. Kegebein said. Should higher
tariffs kick in, she said, the company may switch to buying goods
already sitting in American warehouses
Lingling Wei and Grace Zhu contributed to this article.
Write to Chao Deng at Chao.Deng@wsj.com
(END) Dow Jones Newswires
October 19, 2018 08:34 ET (12:34 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.