Singapore (Platts)--25Nov2008

The impact of the global financial crisis on the Chinese economy has been
more severe than earlier anticipated and this has drastically reduced the
demand for Chinese exports, an official from China's top economic policy
planner the National Development and Reform Commission said.
"The US financial crisis has spread from the financial sector to the
global economic system and it's having a huge impact on all industries,
including real estate, car manufacturing and oil," Yang Qing, deputy director
of the NDRC's price monitoring bureau, said in a speech at a forum organized
jointly by Platts and Thomson Reuters in Beijing Tuesday.
According to Yang, a 1% drop in the US economy will cause China's exports
growth to contract by 7-8%, and the impact has started to surface within the
local economy.
A report published by the People's Bank of China on the third quarter
business survey of 5,000 local enterprises showed the export orders index
registered a small growth of 2.6% in Q3, but down 2.6 percentage points from
Q2 and the export order expectation index for Q4 is expected to increase 4%,
down 2.2 percentage points from the previous quarter.
According to the PBC, this is the sharpest decline to date and the index
has dipped to its lowest since China's foreign exchange formation mechanism
reform started in July 2005.
Statistics from the recently concluded annual Canton Fair held in
southern China's Guangzhou city showed that total value of business contracts
concluded during this year's fair fell 17.5% from last year, the first decline
in five years, Yang said.
Against such a backdrop, the government stands ready to swiftly and
prudently modify economic and fiscal policies to stabilize the economy, she
said.

OIL TRADERS FIND WAYS TO LIMIT EXPOSURE
Faced with the possibility of tightening credit in the domestic market,
the country's fuel oil and LPG total trading volumes are now lower than before
as trading companies and end-users are taking proactive steps to limit their
exposure to risk.
A recent poll by Platts of trading companies based in southern China
showed that many Chinese oil traders and importers have switched to buy more
on a term basis and limited volumes on a spot basis.
Bunker supplier Brightoil used to sell 80% on a spot basis and only
committed 20% of its sales on term. But now, the company will lock in 80% of
its total sales volume on a term basis and will sell only 20% of the total
quantity on a spot basis.
A majority of the South China's fuel oil importers now trade on a
back-to-back basis, and don't hold too much inventory, to control their credit
exposure.
Importers are also taking steps to limit their credit exposure to their
customers by limiting the quantity they sell to one customer. For example, if
one customer requests for 30,000 mt, importers will only sell 20,000 mt to
that customer.
Chinese trading houses now no longer extend open credit to most of their
customers, and end-users are required to put up-front deposits, open
letters of credit or provide proof of sound cash balances in their bank
accounts for purchases.

SOME ECONOMISTS REMAIN OPTIMISTIC
But some economists and analysts appear to be slightly more optimistic
about the Chinese economy and its ability to ward off the negative impacts of
the financial crisis.
"In spite of weaker exports and the real estate slowdown, [China's]
economic growth should remain relatively robust in 2009-2010," Liao Qiang,
associate director, corporate and government ratings at Standard & Poor's,
told attendees at the same forum.
According to Liao, major banks, including those in China, are relatively
well capitalized and have limited exposure to "troubled assets." Most rated
banks also do not depend significantly on wholesale financing.
In addition, "many [Asian] governments have strengthened their fiscal
positions and foreign exchange reserves. These can provide counter-cyclical
support and provide some insulation from the global financial conditions,"
Liao said.
And while there is significant room for monetary and fiscal policy easing
to provide support for growth, Liao warned that the room for "policy
miscalculation" is narrowing as over-stimulation could lead to unsustainable
growth and heighten domestic bank's credit risk exposure.
S&P, like Platts, is a unit of The McGraw-Hill Companies.
--Calvin Lee, calvin_lee@platts.com