The decline was partly due to policies aimed at shrinking the surplus, but higher imported energy and resource prices had also contributed to the fall, the official Xinhua news agency quoted unnamed analysts as saying.

The surplus for the month of July alone was 25.3 billion dollars, a decline of about 900 million dollars from the same month a year ago, according figures from China’s customs agency.

The country’s trade data this year has been volatile, partly due to the Olympics and other special events, as well as changes in holidays.

But on average export growth had been running at 22-23 percent, Goldman Sachs said in a research note, adding it had been “softer than the strength seen last year but not as bad as many had feared.”

The surplus has been a source of bitter friction with major trading partners like the United States and the European Union.

But China’s exports have weakened in recent months mainly because of a global economic slowdown and a gradual strengthening of the Chinese currency, the yuan.

As a result, Chinese policymakers have quietly adopted measures to help the nation’s exporters.

Beginning this month, China improved tax incentives for exporters of some textile and apparel products, moving to support companies struggling amid weakening foreign demand.

Observers have also said a recent slowdown in the rate at which the yuan is strengthening against the US dollar may reflect an attempt to keep Chinese export prices competitive.

The China Currency Coalition is an alliance of industry, agriculture, services, and worker organizations whose mission is to support U.S. manufacturing and production by seeking an end to Chinese currency undervaluation. The CCC does not endorse candidates for public office. Attached is a list of the CCC’s membership. Additional information on the coalition can be found on its Web

The company, whose 600 staff produce screws, nuts and bolts by the millions, has found that in an age of uncertainty it has to rethink the nuts and bolts of global trade.

“With the subprime crisis, each of our clients has become potentially exposed to unpredictable risks such as bankruptcy,” said Xiang Guihong, sales manager at the company, which focuses on North American and Australian markets.

Xiang said his company used to have “great faith” in its regular overseas customers, but early this year it started to buy credit insurance for all export orders to guard against possible payment defaults.

“As late as last year we felt no need for such a practice. Now we understand that it will help our credit risk management,” Xiang told AFP.

Xiang said the company was particularly affected by the gloomy US property market because its products are widely used in the construction of buildings and infrastructure.

Based in Zhejiang province in eastern China — a major export powerhouse — the company saw shipments to the United States slump more than 30 percent in the first five months of 2008 from a year earlier.

It is stories like this that help explain why in the first five months of this year, China’s overall trade surplus declined 8.6 percent from the same period a year ago to 78 billion dollars.

This has served as a wake-up call for Xiang, and thousands of other Chinese businessmen, who traditionally have under-emphasised the need for hedging against customer default.

“There is underestimation of the credit risks in Asia in general and in China in particular,” said Jerome Cazes, chief executive of Coface, a Paris-based trade insurer.

Many local firms simply rely on trading records and site visits for credit evaluation.

“The subprime crisis is now impacting the real economy, meaning that the B2B (business-to-business) credit crisis kicked in January 2008 and will continue at least for the full year 2008,” he said.

According to Xiang, New Oriental, which had allowed for payment terms as long as 60 days in the past, now requires its US clients to pay for the goods within seven to ten days after delivery.

The pressure is passing upwards through the chain to New Oriental’s domestic suppliers in a ripple effect.

“Steel makers and steel trading firms only accept cash for payments,” he said. Our working capital is so tight that if we had a large amount of account receivables, we’d run out of money needed to buy raw materials for new orders.”

This is a situation felt by a large number of Chinese exporting companies, according to Coface.

“Domestic companies exporting to the US are affected by payment incidents in the United States and in turn cannot pay their suppliers in China,” said Richard Burton, the insurer’s regional managing director for Greater China.

Economists in China agreed. “It’s certainly a very real problem,” said Li Yushi, a researcher with a think tank under the Ministry of Commerce.

Li said Chinese companies may need to prepare themselves for a poorer credit environment in domestic trading in the second half of the year if export growth continues to slow.

“For this year, exporters here are really faced with troubles both at home and abroad,” said Guo Mu, a trade official with the official Zhejiang Foreign Trade and Economic Cooperation Bureau.

“We are telling them to make clearer credit investigation on their foreign clients before scrambling for orders. They need to think twice if they feel uncomfortable about potential losses,” he said.

According to Xu, the Chinese economy had registered a double-digit growth rate in the past five consecutive years since 2003. The growth rate was an average of 12.8 percent annually.

It was the second time since 1990 that the world’s fourth largest economy witnessed such robust growth. Between 1992 and 1996, the Chinese economy soared annually by 12.4 percent on average.

Such growth, however, would not last given the law of economic cycles, Xu said, adding a slowdown was certainly to take place after a peak point on the growth curve.

“Globally, it is rare for the economies to sustain a double-digit growth rate for five years in a row. So far, only Japan, Singapore and Hong Kong have scored such performance.”

He added another sign of a slowdown in the economy existed in the fact that China’s growth rates for 2008 forecast by international financial institutions were all lower than 11.9 percent, the 2007 growth rate for the country.

He said the cyclical fluctuation, this time, was expected to be much milder than that in the 1990-1999 cycle and the Chinese economy looked to make a successful soft-landing in the coming years.

According to Xu, in 1999, China reported an annual growth rate of 7.9 percent, which he said was the trough of the 1990-1999 cycle.

“The current cycle has not ended yet. We are forecasting a new trough, which we think won’t be too low.”

Over the mounting inflationary pressure, Xu told the weekly the inflationary peak point of the current economic cycle was expected to show up in 2009, two years after the appearance of the growth peak.

“This year, we are facing a very severe situation in terms of inflation. In fact, we expected the inflation rate to drop in the second quarter but it didn’t happen.”

According to Xu, it was probable that the drop of the inflation rate would be further delayed in the wake of the May 12 8.0-magnitude earthquake that rocked the southwestern Sichuan Province and had killed 69,142 people as of Monday noon.

“We should pay the utmost attention to inflation. If the inflation rate reaches the peak one or two years later from now, the Chinese economy would be under huge pressure.”

Last week, the Institute of Finance Research under the People’s Bank of China (PBOC) said in a report that the Chinese economy had slowed because of the U.S. credit crunch, a spate of tightening measures and natural disasters.

Consumer prices were high, making the fight against inflation arduous, the report said. “The pressures for broad-based price rises are still the biggest risk for the macro-economy.”

The consumer price index (CPI) rose 8.2 percent in the first four months from a year earlier, the highest in 12 years and above the government target of 4.8 percent for 2008.

The high inflation came amid high commodities prices, normal rises of China’s once-low resources and labor costs and economic structural imbalances.

Inflationary pressure would be heavy for the whole year as prices of commodities and food had further room to rise. There would be increasing demand for credit in the post-quake period, the report noted.

“The government should stick to tightening policies to prevent excessive credit growth and thus provide a relatively tight environment to constrain total demand and stabilize prices,” it said.

It also suggested the authorities pursue pricing reforms for resources in the medium and long term to ease price pressures caused by the extensive growth mode and excessive consumption of resources.

This year’s drop isn’t statistically significant, and “China has been on the upward path” in recent years, IMD World Competitiveness Center research fellow Suzanne Rosselet said. In 1995, China ranked 34th.

Rosselet said many factors have contributed to the drop, such as domestic price hikes and the environmental costs of development.

The U.S. continued to top the competitiveness rankings for the 15th consecutive year despite signs its economy is declining.

The IMD economists said the report was based on 2007 data that don’t reflect the U.S.’ current economic woes. “The big question is whether the United States will be No 1 after this year,” project director Stephane Garelli said.

Singapore and China’s Hong Kong kept their respective second- and third-place rankings, and the gap is narrowing between these two economies and the U.S.’, the IMD study said.

Switzerland climbed two places to fourth.

Among the so-called “golden BRIC” countries, Brazil jumped six places to 43rd; Russia dropped by four to 47th; and India dropped two places to 29th.

The study evaluated 55 economies using 331 criteria to measure how those nations create and maintain favorable business conditions. Such factors as economic performance, government efficiency, business efficiency and infrastructure are major criteria for the measurement. In economic performance, China ranked No 2, and it ranked 12th in government efficiency.

“China is an economic miracle by any standard,” John Wells, who became head of IMD in April, said on May 21 in Beijing.

But Rosselet said China’s rapid economic growth has come at a cost.

Its exports, for example, have provided inexpensive products for Western countries, but also consumed a lot of resources and produced a lot of pollution in the country, analysts said.

Rosselet also said the Sichuan earthquake, which devastated the province last Monday, would have a marginal impact on the “resilient” Chinese economy. In addition, the government’s transparency and openness in dealing with the disaster would boost its international image, she added.

Globally, due to the continuous depreciation of the U.S. dollar and strong growth of some emerging economies, prices of energy, raw material and farm products have kept rising, which has pushed up inflation rates worldwide, he said.

Over the last year or so, China has been faced with mounting pressure on inflation.

China’s consumer price index, the main gauge of inflation, has risen from above three percent in March last year, to above 6 percent in August, and to 8.5 percent year-on-year last month, as a result of the robust national economy and domestic food price rises coupled with soaring international energy prices.

China, however, is still capable of warding off galloping inflation because the world’s fourth largest economy, which has enjoyed robust growth in the last few years, has a favorable fiscal situation and enterprises’ profitability has significantly improved, said the vice governor.

He said China’s macro-economic policies at present are primarily aimed to guard against a shift from structural price rises to evident inflation.

Regarding the fiscal policies, Su said it is necessary to maintain stability and continuity. As to the monetary policies, he noted that the main task is to create a favorable environment for curbing inflation.

Earlier on Monday, the PBOC announced that it would raise the reserve requirement ratio for commercial banks by half a percentage point to curb excess liquidity and ease inflation.

This will be the fourth such move this year, and it will lift the country’s reserve requirement ratio to a new high of 16.5 percent as of May 20.

“The rise is aimed at strengthening liquidity management in the banking system and steering reasonable growth in bank credit,” the central bank said in a statement.

The PBOC raised the reserve requirement ratio on Jan. 25, March 25 and April 25, respectively, on top of 10 such moves in 2007. It also raised interest rates six times last year.

The new tightening measure was unveiled on the same day as the National Bureau of Statistics said the country’s inflation rate hit 8.5 percent in April, up from 8.3 percent in March and only slightly lower than the nearly 12-year high of 8.7 percent in February.

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“The outlook for the global economy today is much worse than it was a year ago,” he said at a luncheon at the Hong Kong General Chamber of Commerce.

Unteroberdoerster said the world economic growth would be below3 percent in 2008 and did not rule out a global repression.

The world economy averaged a growth of 4.9 percent in 2007, down 0.1 percentage points from the previous year and the IMF has projected a growth of 3.7 percent in its forecasts announced in mid-April. China had a growth of 11.4 percent in 2007.

Unteroberdoerster said the advanced economies, such as the United States and the European Union, were most affected by the current financial turbulence.

“If you look at the housing sector in the United States, it is obvious that there is no signs of a recovery yet,” he said, adding that the influence of the financial turbulence may well be carried into 2009 and thereby slow down the year’s growth.

But the emerging economies remained the most dynamic as they expected a growth that would be slower in 2008 but still above the trend growth over the last decade, he said.

Unteroberdoerster said the advanced economies and the emerging economics have diverged over the recent years but not de-coupled. The advanced economies experienced a slowdown since 1970 while the emerging economies has been picking up momentum after their growth slowed down to about the same level as the advanced ones around 1990.

China, which has had a rising exposure to demand from the United States and the EU over the past decades, will grow at just above 9 percent in 2008. India, less exposed to demand from the advanced economies, will be less affected by the slowdown, he said.

“Asia’s financial exposure to the United States has also risen. As a result, growth has become more synchronized, as has financial market performance,” he said.

Unteroberdoerster said the risks were still tilted to the downside, mainly because the end of the housing market downturn in the United States did not seem near and the inflation pressures across the world economies were raising concerns.

The state-owned EVN, which bought 2.67 billion KWh of electricity from China’s Yunnan province in 2007, is building 45 power plants with total capacity of 14,589 MW. The plants, mostly thermoelectric ones, are expected to come into operation in 2010.

The EVN is expected to increase its output by around 15 percent this year, while local demand is estimated to rise by 17-18 percent. In some provinces, the electricity demand increased 40 percent in the first quarter of this year.