Exporters in the processing trade should expand sales in the domestic market to offset weakening overseas demand as the global market remains bearish in the second half, a senior trade official said on Tuesday.

"Global conditions have been challenging largely due to the still-sluggish demands in major developed economies," Jiang Yaoping, vice-minister of commerce, said at a press conference in Beijing.

Europe, which was the third-largest destination for China's processing-trade exports, saw a sharp decrease of 21.2 percent year-on-year in July's export volume, he said.

"We estimate the second half will continue to see a complex and rigorous external environment, but we will strive to accomplish the growth target set for this year," Jiang said.

China set a 10 percent target for export growth in 2012, but latest trade data don't provide much reason for optimism.

In the first seven months of this year, the export volume of the processing trade rose 4.4 percent, 3.3 percentage points lower than the increase in overall exports, according to the Ministry of Commerce.

"The processing trade is the most sensitive (sector) and directly reflects market demand," Jiang said.

Guangdong province, where processing trade volume accounts for 55 percent of overall trade, and a quarter of the nation's total processing trade volume, faces more downward pressure in August and September, said Zhao Yufang, deputy governor of the province.

Facing the difficulties, China will have to create a stable policy environment, and promote technical upgrade and industrial transfer of the companies involved in the processing trade business, and meanwhile, a shift to the domestic market, Jiang said.

Premier Wen Jiabao and Vice-Premier Wang Qishan have called for more support for processing trade enterprises to expand sales in the domestic market, and encouraged more trade processing products to be sold on the domestic market.

However, "China lacks channels for such products to enter the domestic market as there isn't a national platform to facilitate such a transfer," Jiang said.

But that situation may soon change, as the first China Processing Trade Products Fair, co-organized by the Ministry of Commerce and five other bodies, will be held in Dongguan, Guangdong province, from Sept 16 to 19.

The four-day fair is expected to help processing trade enterprises cope with the crisis and develop multiline operations, Jiang said.

The ministry has invited 46 companies as the key purchasers during the fair, including nearly all the major megastores in China such as Beijing Wangfujing Department Store Group.

Processing trade generally refers to the practice of importing raw materials or components and then re-exporting the finished products after processing or assembly. The business plays a major part in China's foreign trade and is listed separately in trade statistics.

The proportion of processing trade has been declining in China's overall trade volume, from more than 50 percent in 2008 to around 35 percent in 2011, data from the China Customs showed. But it still accounted for more than 40 percent of the total export volume by July this year.

Except for shrinking demand in overseas market, upgrading and industrial transfer to inland provinces or other countries with lower costs are also resulting in losses in processing trade orders, said Zhang Haiyuan, a researcher with the ministry.

Despite its decelerating growth rate, the processing trade is still a key way for China to participate in the global division of labor, said Han Xiushen, another researcher with the ministry.

"To maintain stable growth, and to extend the section along industrial chain in which China's processing trade is involved will be the direction for future strategy."

Huang Xianhai, a professor with Zhejiang University, said the processing trade in China is closely related to the use of foreign capital, as many companies are foreign-funded. "A decline in processing trade volume could further weaken the confidence of foreign investors, which would lead to more capital outflows, and that's a vicious circle we don't want to see."

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