The outlook for China's foreign trade will remain grim in the near future as exporters' confidence fell in May, an industrial survey covering businesses in the Pearl River Delta region has suggested.
The survey, conducted by Shenzhen-based One Touch Business Services Co, a Chinese provider of foreign-trade services, said the foreign trade climate index fell below the threshold in May in the delta region, one of China's major industrial bases.
The index, which reflects Chinese exporters' anticipation of future operations, stood at 98.65 in May in the delta region, 1.35 points below the threshold and a 5.15-point decrease from a month earlier, the survey said.
The survey covered 500 major exporters in the Pearl River Delta.
"The main factor behind the decreased index is the rising value of the yuan in recent months," Xiao Feng, deputy general manager of One Touch Business Services, told China Daily.
"The yuan appreciation has made it difficult for exporters to make a profit. They also face other challenges including the rising costs of consumption of energy, especially electricity, in summer."
China's foreign trade in May rose only 0.4 percent year-on-year, with exports growing 1 percent, the slowest pace in the past 10 months, according to the General Administration of Customs.
Imports edged down 0.3 percent in May, a sharp drop in contrast with a 16.8-percent increase in April.
"If the value of the yuan continues to rise in the near future, China's trade outlook will remain grim in the third quarter," Xiao said.
Vice-minister of Commerce Zhong Shan said the nation faces "severe" challenges to maintain steady trade growth amid the world's slow economic recovery, according to a recent statement on the ministry's website.
"External demand has not shown clear improvement. China's traditional industries are losing competitiveness while global competition becomes fiercer," Zhong said.
Chen Yanping, assistant general manager of Guangzhou Fine Horse Leather Co, said the company has yet to see an increased number of orders from overseas buyers.
"We took a very cautious approach for new orders, given that the appreciation of yuan has made it difficult for us to make money," Chen said. Liu Ligang, chief greater China economist at ANZ Banking Group, said severe challenges lie ahead given that trade friction and the value of the yuan are on the rise.
After the European Union's decision to impose duties on imports of Chinese solar panels, China subsequently opened an anti-dumping and anti-subsidy investigation into wine imported from the EU.
"The rising trade friction, though involving a relatively small portion of trade, will further complicate the already murky trade outlook," Liu said.
"Instead of attaching importance to self-development, a growing number of Chinese companies focused on arbitrage activities following the yuan appreciation in the past few months. Such an irrational approach will hurt the Chinese economy in the long term."
Liu attributed the slower trade increase in May to China's tighter rules designed to curb capital inflows disguised as trade payments.
Rising momentum in China's foreign trade in the first four months raised suspicions that companies may have misreported exports to obtain tax rebates or to bypass the nation's capital controls to move money into the mainland, prompting authorities to create new rules to check trade flows.
As a result, Liu called on the central government to cut the interest rate to reduce the flows of hot money.
"A devaluation of yuan will help exporters increase their competitiveness in global trade," he said.
In May, the State Administration of Foreign Exchange said it would increase its scrutiny of exporters and hand down warnings to companies found to be sneaking funds into China.