Trade downturn

The overall trade indicators continued to suffer on the back of negative data from the US and Europe, China's largest markets.

In the US, year-on-year economic growth in the second quarter was only 2.1 percent, along with just 1.3 percent annualized quarterly growth. The numbers in Europe also did not bring any cheer.

Trade is of extreme importance to China's economy, with exports alone accounting for more than 31 percent of the total trade in 2011, says a recent World Bank report. But economists feel that this is something that will change this year and the full year numbers will rely more on domestic demand as sentiments in the US and Europe are not expected to recover until sometime into the next year.

"There will be no major acceleration in growth in either the US or Europe in early 2013 as savings and investment levels are still too low," Ross says. "Major developing economies such as India and Brazil have also slowed somewhat although they will continue to grow."

Trade increased a mere 6.2 percent in the first nine months of 2012, behind the desired target of 10 percent. The weakness in global demand has affected Chinese exporters badly with many factories bleeding from heavy losses in Europe.

Chen Yuning, president of Zhejiang GB Textile Printing and Dyeing Co Ltd, in the export-oriented coastal province of China's eastern Zhejiang, says that the business with European clients has stagnated and profit margins have been squeezed due to the sluggish economy in Europe.

"The more we are doing business with them, the more we lose, as they are cutting the prices further," he says. "So we have to depend on the domestic market, or send some workers on short leave."

The shrinking exports have also resulted in a vicious circle of falling inventories at companies, lower industrial output and even problems for lenders. But economists are still optimistic that the financing conditions have improved due to the anticipated stronger money supply growth in the next few months.

According to a recent report from Reuters, credit was slated to grow by 19.6 percent in September up from 18.8 percent in August, well above the 16.4 percent official figure for bank lending growth.

But economists caution that more tough decisions on various economic and financial reforms are needed to steer the Chinese economy out of the troubled waters.

Contact the writers at lvchang@chinadaily.com.cn and yanyiqi@chinadaily.com.cn