Li Jian
China's trade surplus amounted to US$39.61 billion in January
and February, more than double the figure of the same period last
year.
The strong surplus growth momentum is a result of China's
continued foreign trade expansion since the second half of last
year, when its exports picked up while its imports remained
stable.
Statistics show that China's exports of highly competitive
industrial products, such as textiles, shoes, furniture and steel,
have been strong. Exports to its major trade partners outpaced last
year.
Given the growth momentum, it would not be surprising if China's
trade surplus exceeds US$250 billion this year.
Apart from the factor of hot money, or inflow of speculative
capital under the current account, there are new reasons for
China's soaring trade surplus.
Since its accession into the World Trade Organization, China has
steadily improved its competitiveness in trade. Since 2002, its
annual trade growth has averaged 28 percent while its export growth
averaged 29 percent, both about 10 percentage points higher than
the average rate of the past 30 years.
The expanding investment in recent years, on the other hand, has
jazzed up China's production, serving as a powerful engine for its
exports.
China has been dampening investment recently. At the same time,
the country is manufacturing more of its own high-tech, mechanical
and electrical equipment used in the production of exports.
This has, naturally, led to a slowdown in some equipment
imports.
Despite this, although China has taken a series of measures to
control its export growth momentum and encourage imports of high
value-added and resource-consuming products, its exports have kept
growing faster than imports.
In the long run, China needs to change its growth pattern and
stimulate domestic demand to balance its trade. It needs to help
its exporters update their strategies to export more
high-value-added products instead of the current low-end
products.
In the short-term, policymakers must figure out solutions to the
export-import gap.
China has adjusted its trade policy, lowering export tax rebates
and imposing taxes on export of resource-consuming products.
Meanwhile, it has raised its requirements on foreign investors
which are a major force in the manufacture of exports regarding
environmental protection and social responsibility.
This has put pressure on exporters, who need time to adapt to
the new situation.
As a populous developing economy, however, China still needs to
develop labor-intensive industries, which are behind the current
strong export economy. And as the domestic demand will not increase
in the short term, it is necessary for China not to dampen exports
immediately. Otherwise, its economy and employment will suffer,
especially in the economically underdeveloped middle and western
regions.
Given the projected slowdown of US economic growth and China's
further adjustment in its export policy, the country's export
growth may slacken. But China can, nevertheless, be expected to
retain a growth rate of more than 20 percent for the middle and
long term.
China's import growth has remained slow compared with its
exports, but that does not mean it will not pick up in the coming
years.
China has entered a stage of accelerated industrialization. The
heavy and chemical industries are showing strong growth, which
increases demand for advanced manufacturing equipment, raw
materials and energy. Since the domestic supply cannot satisfy
demand, China can expect to see its imports of those products
increase continually in the long run.
With the number of China's high-income earners increasing
rapidly, the domestic demand for luxury goods has been on the rise.
Domestic supply will not be able to satisfy the demand. Imports of
such products are expected to increase gradually.
Moreover, China's agriculture is limited by the country's meager
per capita farmland and water resources. As a result, its
agricultural production, which depends on land and water, is at a
disadvantage compared with imported products.
Imports of agricultural products, therefore, will increase in
the long run.
China used to encourage exports because it lacked foreign
exchange capital and needed to protect its fledgling domestic
industries and create more jobs.
Now that it has become a major manufacturing and trade power,
China no longer needs such a lopsided trade strategy.
The most important principle it should uphold is the creation of
a more market-based, fair and neutral trade environment.
Policymakers need to have a balanced view toward the
relationship between export and import, casting off the traditional
mentality that discourages imports.
The State also needs to devise favorable tax policies for the
import of necessary resources such as iron ore and advanced
equipment and products that are crucial for China's domestic
industrial development.
Apart from lowering the tariffs on these imports, China should
consider cutting the value-added tax and other taxes and fees on
these products.
China also needs to gradually lower tariffs on high-end consumer
goods and luxury goods to help the balance of trade.
The author is a researcher with the Chinese Academy of
International Trade and Economic Cooperation, attached to the
Ministry of Commerce
(China Daily April 6, 2007)