Liu Zhongzhou
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China and the United States have entered a period of
inextricable interdependence in economic and trade relations. A
robust US economy will serve the best interests of China while
further Chinese economic growth will continue to make China the
fastest growing export market of the US.
However, for the past few years this mutually beneficial
relationship has been overshadowed by the dispute over the
persistent trade imbalance. A number of protectionist trade bills
against China have been brewing in the US Congress.
Emotional political arguments have been used to justify such
legislation. Critics like to slander China for flooding the United
States with what they term "cheap and job-destroying imports" in
complete disregard of the enormous benefits for the general
American public and trade interests of American business.
There is a danger that this blame game could evolve into the
fatal mistake of adopting protectionist legislation that will cause
irreparable damage to bilateral economic and trade relations as
well as the multilateral trading system.
It is in no one's interests to suffocate the engine of world
economic growth with protectionist measures. It is gratifying that
at this juncture the Chinese government and the US administration
have launched a regular strategic economic dialogue. The purpose of
the China-US Strategic Economic Dialogue, with the second round
just completed in Washington, is to carry out objective review of
the existing problems and find long-term solutions from a global
perspective.
China recognizes that its persistent and increasing trade
surplus could cause structural adjustment burdens to its trading
partners. However, in a globalized economy, all economies have to
restructure. China's export capability is attributable to the
openness of the Chinese market, particularly the very liberal
foreign direct investment regime.
Foreign investment ventures account for more than 60 percent of
China's total exports. Curtailing China's export capability would
mean the counter-productive move of penalizing export sectors
including foreign investment enterprises.
China is making strenuous efforts to redress the imbalance
through a mixed package of measures.
A major aspect is further market-oriented reform of its
macroeconomic policies coupled with administrative measures to
boost domestic demand and slow exports. But the impact of systemic
reform will be felt only in the course of time.
The United States should also examine the trade imbalance in an
objective manner. It needs to make the necessary structural
adjustments to enhance competitiveness and eliminate export
restrictions on technology goods where it has the comparative
advantage.
US officials keep arguing that technology represents only a very
small proportion of Chinese imports from the United States. The
cause is stringent US export control.
The US-China trade imbalance should be examined in the framework
of overall US-China economic relations as well as in the global
context.
American business is in the best position to tell where American
interests lie. The US-China Business Council is cautioning US trade
policymakers to avoid focusing on the bilateral trade deficit while
missing the bigger story of the US trade imbalance.
According to the council's recent study, China's share of the US
global trade deficit over the past decade has only grown slightly -
from 27 percent to 28 percent.
During the same period, the rest of East Asia's contribution to
US global trade deficits declined sharply from 43 percent to 17
percent because East Asian economies invested heavily in China. As
a result, they shifted their long-standing trade surplus with the
United States to China.
Meanwhile US trade deficits with the rest of the world have
grown dramatically. A unilateral US sanction against China will
wreak havoc on the East Asian economies.
Factual data speaks louder than political rhetoric. The US-China
Business Council in its latest report presented convincing
statistics documenting the benefits accrued to the United States.
US exports to China since 2000 have grown at a significantly faster
rate than US exports to any other major export market.
Between 2000 and 2006, overall US exports to China increased 240
percent. Growth in exports to China far outstripped exports to the
rest of the world in almost every US state. Smaller states have
shown remarkable growth of exports to China. For example exports to
China from Vermont increased by 1,300 percent, Delaware by 844
percent, South Carolina by 453 percent.
Paradoxically, South Carolina is one of the toughest hard-line
states pushing for protectionist legislation against China. The
Wall Street Journal May 1 editorial made the point that the
US Congress shouldn't "spark a trade war that would kill the Peking
duck laying golden eggs".
It goes without saying that a long-term solution to the
imbalance will require structural reform from both sides. Chinese
policymakers are advised to take a global view in designing
industrial policy.
That would mean give and take in market access, creating an open
market, letting market forces decide what to produce, what to
import and what to export. It would be unrealistic, unwise and
inefficient for every industrial sector to attempt a trade surplus,
an argument frequently used by domestic industries to resist
further liberalization.
If this were accepted as a principle, the Chinese Ministry of
Commerce would face an impossible task in international trade
negotiations.
For example, given the limited arable land and shortage of water
resources, attempting an agricultural trade surplus would drive
farmers to over-exploit the land and accelerate the depletion of
precious water resources, precipitating environmental
degradation.
This is contrary to the "scientific view of development"
advocated by the central government as a core principle of
development policy.
China has made quite extensive market access commitments in the
service sector compared with other more advanced developing
countries. But in some sub-sectors implementation of these
commitments has lagged behind.
The faithful implementation of the commitments could
considerably improve market access conditions for US service
providers who have comparative advantages in their respective
fields.
As a matter of fact, this also complies with China's own
priority of accelerating the development of the service sector.
Faithful implementation would mean liberalization both in spirit
and in deed.
For example, China allows foreign holdings in basic telecom
services of up to 49 percent. Until now nothing has happened. The
authorities may need to review whether regulatory measures have
been too stringent, forming barriers to entry. There is a need to
improve regulatory practices.
Hopefully, with future rounds of the China-US Strategic Economic
Dialogue, both sides will join efforts to support open trade,
reaffirm adherence to WTO rules and disciplines, and make clear the
need to combat protectionism.
The author is former Chinese senior trade negotiator
(China Daily May 24, 2007)