A rising dragon needs to ride on some clouds — as the Chinese used to say. And if you compare this to China's trade boom in the early 2000s, its exports to Europe were a very large cloud.
Not any more. Chinese figures show that, as a result of the lingering sovereign debt crisis, trade with the eurozone has seen negative growth since a year ago.
Chinese merchants are deeply worried. They are worried not just about their own losses but also about the slow progress in the local economies, as a result of the trade setback, and about the all chances for a quick recovery in the market.
Among them is Lin Xiumei, a businesswoman in her 30s, the owner of a two-story supermarket in Zengcheng, a factory town two hours' ride from Guangzhou, Guangdong prvovince.
"There are so few people coming to buy things that we've already had cash flow problems," she said, noting that this was a result of increasing numbers of employers cutting their payrolls or closing factories.
Guangdong Apple Co Ltd, which is in the neighborhood of Liu's supermarket, is a case in point.
During the first half of this year, the privately owned leather products maker and exporter, which used to depend on Europe for 70 percent of its business, saw its orders from Europe decline by 20 percent year-on-year.
What a contrast, for Zeng Hongwu, Guangdong Apple's deputy general manager, from the days prior to 2008, when annual export growth was generally between 20 and 30 percent.
"Now everything you hear is disappointing — falling orders, rising costs, an appreciating yuan, and a deteriorating market."
The same pressure is being felt across the globe, by Chinese merchants operating in Europe.
Su Xinying, deputy general manager of Arpadis Polyurethanes NV, a Belgium-based trading company, said her company imports chemicals from the Asia-Pacific region for resale in Europe, and all of its deals are settled in US dollars.
"The euro is declining and has been fluctuating against the dollar in recent months, and we don't have a positive outlook for the rest of this year," said Su.
"For importers, the trend has dented our profit margin and created uncertainty."
Trade: EU loses top spot as biggest market for Chinese exports
According to the General Administration of Customs, China's exports to the European Union fell 0.8 percent in the first half of 2012 to $163.1 billion, while the country's overall exports grew 9.2 percent to $954.4 billion.
In the meantime, the United States surpassed the EU to become the largest market for Chinese exports, for the first time since 2006.
Chinese exports to the EU accounted for 17.1 percent of the nation's total exports during the first half, down from 20 percent in 2010. Neither corporate executives nor researchers are sanguine about the outlook for the second half.
"The situation remains very severe considering the possibility of a double-dip recession in eurozone economies in the coming months," said Yao Ling, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation, affiliated with the Ministry of Commerce.
"We cannot exclude the possibility that China's exports to the EU will grow in the second half, but this will be very hard to achieve," said Yao.
Zhang Guojian, vice-executive secretary of Guangdong Chamber of Commerce for Imports and Exports of Private Enterprises, agreed.
"We cannot see any signs of recovery for China's shipments to the region in the short term, as the EU market will continue to be slack, probably into the first quarter of next year," Zhang said.
"The European market is so weak that we have had to take all sorts of measures to cut costs since the first quarter of this year," said Zhang Guanjin, manager of Shaoxing Jinyong Textile Co Ltd in Zhejiang province.
"Many textile exporters in Zhejiang are challenged by high costs, and orders have also been declining, as some European clients transfer their orders to Southeast Asia to take advantage of lower labor costs," he said.
Shaoxing Jinyong shifted its focus toward the domestic market two years ago, and 50 percent of its sales now come from the domestic market.
Early this year in his annual Government Work Report, Premier Wen Jiabao set a target of 10 percent for the nation's foreign trade growth this year.
Customs officials said recently that, due to the shrinking global demand and increasing costs, the fundamentals for the recovery of the nation's foreign trade are "not stable".
Gao Hucheng, vice-minister of commerce, said last week that the pressures on the Chinese government to achieve the 10 percent target are "growing", amid the worsening eurozone debt crisis.
Yao predicted that the growth of China-EU trade would be "far below" the national level of 10 percent, dragging down Chinese exports, despite the fairly healthy growth in Chinese imports from the bloc.
The outlook for the eurozone economy remains troubled. The debt woes which started in Greece have spread to other European nations, including Ireland, Portugal and Spain.
Spanish unemployment in the second quarter hit its highest level of 24.6 percent since the mid-1970s, and the number of unemployed Spaniards reached 5.7 million, giving the country the highest proportion of people out of work in the EU.
Moody's Investors Service recently changed its outlook for Germany, the Netherlands and Luxembourg from stable to negative, which has dampened economists' confidence in the eurozone and added to uncertainty over its prospects for recovery.
On top of the decreasing demand, trade investigations by European nations are adding to Chinese exporters' woes.
In March, the European Commission said it was considering imposing duties on made-in-China products to offset alleged subsidies, because it believed that European companies are hesitant about asking the EU to take protective measures for fear that China will retaliate against their business interests. But the move, if taken, would violate World Trade Organization rules, said trade experts.
And the investigations have spread from low-end manufacturing to high-end categories.
In May, reports said the European Commission was preparing an investigation into Chinese telecom equipment companies including Huawei Technologies Co Ltd and ZTE Corp.
After the US announced its preliminary anti-dumping and anti-subsidy duties on Chinese solar panels, European solar panel manufacturers were reportedly preparing to launch an anti-dumping complaint against their Chinese counterparts.
"Sales to Europe were bad during the first half, and orders decreased by big margins," said Zhao Chunyang, general manager of Miracle Dynasty Fine Bone China (Shanghai) Co Ltd.
But the situation will worsen in the second half, and many industrial players will "probably have no orders from the EU market", as the EU is likely to announce anti-dumping duties against Chinese ceramic products in October, he added.
For manufacturers like Miracle, whose major clients are in the EU, change is the only way ahead.
"We are turning toward promoting goods in emerging markets, and boosting spending on research and development," said Zhao.
As Europe faces tough economic conditions, Beijing has expressed concern that Brussels may take protectionist measures against Chinese companies to expand its exports.
"Within the European Union, it is not just up to one government to make this decision, it is a quite complicated process to approve such trade measures," said Jonathan Holslag, a researcher at Brussels Institute of Contemporary China Studies.
Holslag said eurozone countries need to reduce the trade imbalance by expanding exports and creating jobs. He warned that if the crisis lasts longer than expected, Brussels may resort to more protectionist trade policies.
"But at this stage, trade tensions between Beijing and Brussels remain at a manageable level," Holslag said.
Chinese investment
While European investment in China shrank in the past few months, Chinese investment in the EU is rising.
According to the Ministry of Commerce, in the first five months of the year, investment in China from the European Union dropped 5.1 percent year-on-year to $2.78 billion.
But China's investment in the EU increased 23.6 percent, after growing by 100 percent in 2010 and 94 percent in 2011.
One of the biggest deals so far this year was Chinese construction equipment maker Sany Heavy Industry Co Ltd's announcement that it will pay 324 million euros ($426 million) for a 90 percent stake in Putzmeister, Germany's largest concrete pump maker.
Asia, Europe and Africa are the top three destinations for China's outbound direct investment. But since the outbreak of the eurozone debt crisis, Europe has led the growth and will probably continue to do so, experts said.
Recent research by consultancy Rhodium Group and China International Capital Corporation showed that China is set to accelerate its overseas investment, and debt-stricken Europe will be the most attractive market for Chinese companies.
By the end of 2020, China's investment in the region will range between $250 billion and $500 billion, it predicted.
"The fast growth could be attributed to China's 'go overseas' strategy and the devaluation of assets in some European companies," said Yao from the Chinese Academy of International Trade and Economic Cooperation.
A survey conducted by Ernst & Young showed Europe remains the top destination for Chinese investors over the next three years.
But Zhang Jianping, an expert at the Institute for International Economic Research, a think tank of the National Development and Reform Commission, warned of the risks.
Growing Chinese investment in the eurozone is putting the bloc on alert, and uncertainties over the eurozone debt crisis are casting a shadow over investment deals, Zhang said.
Yu Ran in Shanghai and Shu Meng in Guangzhou contributed to this story.
