Shanghai posted a contraction in total trade for 2012, the first time in three years, with exports falling 1.4 percent, while imports continued to increase at 1 percent, according to a report released by the Shanghai Municipal Statistics Bureau on Monday.

The service sector has become an economic growth engine in the municipality, the bureau said.

Combined trade totaled $437 billion, down 0.2 percent from 2011. The fall in exports to $207 billion was largely attributed to decreased orders for a wide range of consumer goods from the hundreds of thousands of small to medium-sized enterprises in the municipality.

While the trade decrease could possibly hinder Shanghai's bid to be the regional trade hub, economists said the figures faithfully reflect the gathering pace of the city's transformation into a higher value-added service-oriented economy. The service sector, including finance, property, tourism and communications, expanded to 1.2 trillion yuan ($192.8 billion) in 2012, up 10.6 percent from a year before.

On the whole, the service sector contributed to about 60 percent of the city's economy, up from 58 percent in 2011, replacing trade as the main engine of growth, as reflected in the 7.5 percent rise in GDP in the city, which reached 2.01 trillion yuan.

The city government has been focusing its efforts in promoting the service sector with the aim of establishing Shanghai as an international financial center that can rival New York, London and Hong Kong.

"The shipping and financial services industries saw positive growth upon support from various parts of society," said Yan Jun, SMSB chief economic engineer.

The added value of Shanghai's financial industry was 245 billion yuan, up 12.6 percent. The value of transport, warehousing and postal industries in 2012 was 89.5 billion yuan, up 5 percent.

Economists said the service sector will eventually eclipse the trade sector as more and more industrial enterprises move to neighboring regions or farther into the interior provinces, which continue to offer a plentiful supply of land and labor. It's a trend encouraged by the Shanghai government for economic and environmental reasons.

The last time the city saw shrinking foreign trade volume was 2009.

Yan said he regarded the structure of Shanghai's foreign trade as "stable and reasonable".

"As imports and exports of Shanghai do not reflect economic activities only in Shanghai, and may be affected by and serve the needs of economic activities in many regions in China, we cannot say that Shanghai is seeing a trade deficit," Yan said.

Song Xiaohui, deputy director of Shanghai SME Development and Service Center, added: "We've seen certain SMEs fail to receive enough orders to make profits and were forced to stop production in 2012, but this will change with the warming up of the economy."

Song added that the economic recovery in 2013 will definitely help the majority of SMEs out of their money-losing situations, and they will show profits eventually.

Although the gap between imports and exports has been expanding since 2011, Yan said the current situation is meeting the demands of Shanghai's economic growth and the city's efforts to become an international trade hub.

Industrial enterprises in Shanghai also had a difficult year in 2012, with 26 percent of industrial enterprises "above designated size" reporting losses from January to November. An industrial enterprise above designated size means it has annual income from main business exceeding 20 million yuan.

The total profit of industrial enterprises above the designated size in Shanghai was 204 billion yuan from January to November in 2012, a 1.8 percent year-on-year increase.

Wu Yue, general manager of Shanghai Zaiwang Steel Co Ltd, said: "Hopefully, everything will get better for the year, which will bring us at least a bit of profit so that we can survive in the huge market."

Qian Shaotian, the sales manager of Shanghai Yuanzong Hardware Co Ltd, said: "The export volume of the company dropped nearly 30 percent as the number of orders from overseas decreased sharply during the whole previous year, especially the European market."

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