How China Can React to Falling Exports

Chinese outbound shipments increased by just 7.1 percent in May, a sharp decline from the 14.7 percent growth for April, Bloomberg reported. This comes after China's Flash Manufacturing PMI indicated contraction for May.

Naturally corresponding with slowed exports is the rising value of the yuan compared to the USD and other world currencies. The yuan has picked up almost 3.5 percent on the USD through the past three months, and more one percent on Euro.

One can speculate on possible courses of action China will take.

In the past, China has been accused of keeping their currency artificially low to boost exports several times. It makes sense that China will adjust the value of their currency downward to boost exports. If China's central bank adds a significant amount of money to the economy, it will have an easier time selling goods, but will have the effect exacerbating their housing bubble, and risk international confrontation.

Another method China may use to boost their exports is restricting the government's influence on businesses. This can come in several forms, including tax reduction, subsidization and reduced regulation.

China may accept the change of manufacturing growth, and focus on developing more advanced industries. As countries become more developed, they typically abandon manufacturing to focus on technological advancement and service industries. Lately, China invested resources to develop solar energy technology, and their space program for these reasons.

China may not become the world power many are expecting it to be. This year will be China's slowest year of growth for 23 years, manufacturing may be on a long term decline, and export growth is significantly slowing. Along with these factors, China's economic data is reported with several questionable circumstances; for example, housing and commercial buildings are added to the GDP when they are completed, not sold.

Furthermore, China is feeling significant internal and external reform pressure. Limited environmental regulation, safety regulation, and a low minimum wage are all reasons companies choose to operate in China, factors that may change in the near future.