By Zhou Shijian and Wang Lijun
Since the beginning of this century, bilateral trade between
China and the United States has risen rapidly, benefiting both
sides.
According to China customs statistics, China's exports to the
United States were US$52.1 billion in 2000 and reached US$162.9
billion in 2005, an increase of 212 percent. According to US
customs statistics, the US exports to China were US$16.2 billion in
2000 and reached US$41.8 billion in 2005, an increase of 157
percent. Among the top 15 trade partners of the United States, US
exports to China had the fastest increase.
According to US statistics, China was the United States'
fourth-largest trade partner, the fourth-largest import trade
partner and the 11th-largest export trade partner in 2000. However,
by 2005, China had become its third-largest trade partner, the
second-largest import trade partner and the fourth-largest export
partner, next to Canada, Mexico and Japan. China is the strategic
trade partner of the United States, as stated by President George
W. Bush on March 9 last year.
According to US statistics, China's export to the United States
was US$243.5 billion last year, accounting for 32 percent of
China's US$762 billion total exports and 14.6 percent of US total
imports. This demonstrates the fact that China and the United
States are big markets to each other. In 1994, the US Department of
Commerce listed China as the head of its top 10 newly emerging
markets, which has been proven over the past 10 years.
Like commodities, capital also needs markets and can dwindle
without high capital profits. According to statistics, by the end
of 2005, the US actual investments in China reached US$51 billion.
This demonstrates that China has become a big overseas market for
US capital, next to Western Europe, North, Central and South
America, and Japan.
China and the United States boast remarkable achievements in
financial co-operation. By the end of November 2005, China held
US$254.4 billion in US treasury bonds and a considerable amount of
US enterprise stocks and private securities. By the end of 2005,
China's foreign reserves reached more than US$810 billion, with 60
percent of them being US capital.
Since the beginning of 2005, the economic and trade relationship
between the two countries, however, has encountered some trouble,
as demonstrated by increasing conflicts and frictions. In future
years, the economic and trade relationship between China and the
United States is expected to face many challenges, for example:
intellectual property rights, RMB exchange rate, trade balance,
textile trade and market access in the services area.
It must be noted that most of these are the conflicts of
economic interests among some industrial sectors rather than the
conflicts of fundamental interests between the two countries and
they can be settled through mutual understanding and negotiations.
Besides, these frictions are only the minor ones in the Sino-US
economic and trade relationship and should not affect mainstream
economic and trade co-operation between the two countries.
The two sides should deal with any friction and dispute from a
far-reaching perspective without intensifying the issue. Equality
and mutual benefit are the foundations of economic and trade
co-operation; complementary partners are an important condition for
economic and trade co-operation; and friendly negotiation is an
effective tool to settle frictions and disputes. The threat of
sanctions and retaliation is not advisable, because it not only
violates the multilateral trade system, but also intensifies the
disputes rather than helping settle them.
Trade wars can only hurt both sides and economies having close
economic and trade ties with China and the United States. Therefore
trade wars are not acceptable or supported by most businesspeople
within the two countries.
This has been demonstrated by the restrictions and
counter-restrictions in the textile trade between the two
countries. From June 17 to November 8 last year, the government
delegations of China and the United States underwent seven rounds
of hard negotiations and finally signed a memorandum of
understanding (MOU) on the trade of textiles and apparel.
The MOU reflects the co-operative principle of mutual
understanding and mutual benefit, setting a good example for the
settlement of frictions and disputes in Sino-US economic and trade
relations; it is also helpful for the further development of
Sino-US economic and trade co-operation.
At present a relatively prominent issue is the US trade
imbalance with China. According to China's customs statistics,
China's trade surplus with the United States reached US$114.2
billion; while according to the statistics of the US Chamber of
Commerce, the US trade deficit with China reached as high as
US$201.6 billion.
The United States imports a large amount of daily necessities
from China that are of good quality and low price and that satisfy
the needs of US markets. The products benefit most consumers and
help relieve US inflation, the adjustment of its industrial
structure, and economic development.
Trade deficit is a trade behavior and should be analyzed from
the perspective of market needs. China exported to the United
States 40 or 50 million pairs of shoes in exchange for one big
Boeing 747.
Therefore it should not be easily concluded that a developing
country has trade advantages when it relies on the export of a
large amount of labor-intensive consumer goods in exchange for a
small amount of high-tech equipment and technology.
In the economic and trade co-operation between China and the
United States, trade advantage stays with the United States. Since
the beginning of 1993, the US trade deficit has been mainly
attributed to the fact that the US advantage in high technology has
not been brought into full play. To deregulate the management of
technology export is the way to reduce China's trade surplus. The
initiative of reducing trade deficit with China lies in the hand of
the United States.
The US trade deficit is the consequence of economic
globalization and the restructure of world industries and is the
natural product of the world labor division. US trade deficit is a
structural one and is irretrievable.
How should we look at the issue of trade imbalance between China
and the United States?
First, one main feature of Sino-US trade is that most Chinese
exports to the United States are processed products, accounting for
about 70 percent, which means that China only gets a small amount
of processing fees.
Take the Barbie doll for example. One Barbie doll is sold at
US$9.99, but only costs US$2 when imported from China. Its raw
materials come from the Middle East and are made into semi-products
in Taiwan, the wigs are made in Japan, and the packing materials
are provided by the United States the total of these three parts
makes up US$1. Transportation and management costs US$0.65, and the
Chinese mainland is left with only US$0.35 for processing. In light
of the rule of origin, these US$2 are put into China's export to
the United States. Obviously it cannot tell the real case of the
trade between the two countries.
Second, 70 percent of China's foreign investments are from East
Asia. For many years, Japan, the Republic of Korea, Singapore,
Malaysia, Thailand, the Philippines and China's Taiwan have shifted
their former trade surplus products to the Chinese mainland, thus
causing the "shift of trade imbalance." So, the products made by
these co-operative or 100 percent overseas-owned enterprises are
actually Made in Asia instead of Made in China, and China's trade
surplus is shared by the above countries and region rather than
owned by China alone.
According to US customs statistics, the US imports from the
above countries and region in 2000 were US$302.3 billion, while in
2005 the imports did not increase but fell to US$294.7 billion by
2.5 percent. During the same period, its imports from China jumped
to US$243.5 billion from US$100 billion, an increase of 140
percent.
According to Chinese customs statistics, China's trade surplus
with the United States was US$114.2 billion in 2005, but it had a
trade deficit of US$140 billion with the above countries and
region.
In this sense, China is an Asian processing center. As Li
Deshui, former director of the National Bureau of Statistics, said,
China's trade surplus with the United States and Europe is in fact
a passer-by, a reality of having more flowers than fruits.
Third, the economic and trade relationship between China and the
United States is reflected in four areas: commodity trade,
technology trade, service trade and mutual investment. The trade
deficit generally refers to that of commodity trade.
The US advantage in its trade lies in the past three areas. By
the end of 2005, the actual investment in China by US enterprises
was US$51.1 billion, with 49,000 businesses set up. Most of the
products made by these enterprises are sold in the Chinese market,
with only a small portion of them sold to the US market.
Take GM and Motorola for example. There is a strong demand for
their cars and mobile phones made in China, which, as a matter of
fact, replace China's import of cars and mobile phones from the
United States. These US enterprises enlarge their investments with
the profits made in China and remit the remainder to the United
States, which in fact makes up part of the US trade deficit.
According to incomplete statistics from the Chinese Ministry of
Commerce, in 2004 US-owned firms' sales in China reached as high as
US$75 billion, which can offset 46 percent of the US$162 billion US
trade deficit with China that year.
During the five years from 2001 to 2005, China's total imports
were US$2.173 trillion. During the next five years from 2006 to
2010, China is expected to have imports worth US$4 trillion. This
really is a big newly emerging market.
As long as the Bush administration can greatly deregulate export
management with China like the Reagan administration did, the US
large- and medium-sized enterprises will have the ability and the
possibility to capture more shares in China's rapidly growing new
market, and China will surely become a big market for US
exports.
The industrial structures of China and the United States can
strongly complement each other, which guarantees a bright future
and greater development for broad economic and trade co-operation
between the two nations.
The combination of US capital, technology and management
experience with China's huge market, low-cost labor and resources
will surely bring great benefits to the economic development of
both countries.
China's modernization needs a large amount of US capital,
technology and equipment, which can push and promote US economic
development. Therefore, economic and trade co-operation between
China and the United States is mutually beneficial and a win-win
situation with bright prospects.
Zhou Shijian is the standing councillor of China American
Studies and Wang Lijun is a lecturer at the Capital University of
Economics and Business.
(China Daily April 18, 2006)
