Falling prices are causing the value of China's exports to plummet

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China's exports fell sharply in dollar terms in March as lower prices for Chinese goods weighed on manufacturers in the world's second-largest economy.

The value of China's exports fell 7.5 percent in March, compared with a Reuters poll of analysts that had forecast a 2.3 percent drop from a year earlier. Imports fell 1.9 percent, compared with analysts' expectations for a 1.4 percent increase.

The falling value of exports and rising volumes underscore the challenges facing Beijing as it shifts to manufacturing and trade to pull the economy out of a deep recession fueled by a slowdown in the property sector.

Economists say more capacity in some sectors — particularly those favored by industrial policy such as electric vehicles, solar panels and other areas — could help China lower its export costs and gain global market share.

“There's really fierce price competition going on in the high-tech area of ​​manufacturing vehicles, solar panels, wind turbines . . . so it's hitting economies like Germany, Korea, Taiwan, Japan.,” HSBC Chief Asia Economist Frederick Newman said. “The key is the volumes, and when we compare China's volumes, they are running at record highs.”

Beijing faces mounting accusations from the United States and Europe that its industries are oversupplied, raising fears that exporters are dumping artificially cheap, subsidized goods on international markets.

China's trading partners are calling on Beijing to stimulate domestic demand to fill the gap in the property sector, which once accounted for nearly a third of GDP.

But Chinese officials in recent weeks have mounted a campaign to dismiss Western claims of overcapacity, saying their exports are falling in price and gaining market share due to innovation and competitiveness. China's producer price index has fallen for 18 straight months, while consumer prices have flirted with deflation in a sign of weak demand.

“The fall in product prices is related to factors such as fluctuations in raw material prices, technological upgrades and producers voluntarily lowering prices,” Wang Lingjun, vice minister of the General Administration of Customs, told a press conference in March. numbers. “Chinese products are widely welcomed worldwide because of their innovation and quality.”

China's government has set a target of what analysts describe as a 5 percent increase in GDP growth by 2024. Beijing has announced plans to stimulate domestic demand with plans for industry to “upgrade” its equipment and for consumers to buy new equipment.

The decline in March export earnings followed sharp increases in January and February, driven by a rebound in the electronics cycle and higher exports to countries such as Russia.

German Chancellor Olaf Scholes is due to visit China next week and is expected to call on his counterparts to break down barriers to foreign companies in sectors such as government procurement.

“China is gaining market share relative to other Asian exporters and may be against exports elsewhere in the world,” HSBC's Newman said.

The country's low prices are good for consumers around the world and help governments battling inflationary pressures, but it also means more competitive pressure for exporters in other countries.

“That inflationary effect is exported to the rest of the region, at least on the export side,” Newman said.

Ishwar Prasad, an economist and trade policy professor at Cornell University, said the decline in the dollar could be due to exchange rate factors and some “persistent weakness in China's key overseas markets, particularly in Europe.”

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