By Mei Xinyu
According to statistics from the Ministry of Commerce, China's
trade surplus in March amounted to US$11.19 billion, up 98.5
percent on the previous month.
It is the second highest month-on-month record in history.
China's trade surplus increased tremendously last year. And the
country's development blueprint for the 11th Five-Year Plan
(2006-10) period explicitly states that "imports should be actively
expanded." Against this backdrop, the large monthly increase in
trade surplus has aroused widespread attention.
In effect, however, we should not overestimate the impact of the
trade surplus change over a single month or even a quarter. We
should at least examine the matter over the course of a year
because such a study must be justified by longer-term
observation.
It should be noted that the rapid growth in trade surplus in the
first quarter has solid back-up in the basic economic conditions.
Almost all of China's major trade partners are enjoying prosperous
economic growth.
It is predicted that US economic growth could reach 4.5 percent
in the first quarter.
At the interest rate decision-making meeting of the US Federal
Open Market Committee of the Federal Reserve Board on March 28, it
was announced that growth slowdown in the US gross domestic product
(GDP) during the fourth quarter of last year was only temporary and
was a result of influence from special factors. The committee said
that growth for the first quarter of this year was faring quite
strongly and that momentum had become more mild and
sustainable.
In Europe, the European Union (EU) manufacturing index in March
reached the highest level since September 2000. The finance
ministers of EU members have generally held that economic growth
this year would reach 1.9 percent.
Japan, whose economy has been battered in the past decade,
achieved a GDP growth of 5.6 percent in the fourth quarter of last
year. Its capital expenditure increased by 9.5 percent that quarter
while other indices this year, such as the consumer price index,
bank loan growth and corporate and public confidence in the
economy, have been on the rise. The country is enjoying the longest
period of economic expansion, such that the interest rate
decision-making meeting on March 9 decided to put an end to relaxed
monetary policies.
The strong economic growth of China's trade partners will
inevitably lead to a growth in their imports. We should not worry
about the resulting growth in our trade surplus or even carry it
too far as to bear a sense of guilt. They have purchased Chinese
products not as a result of coercion or improper competitive
behavior.
Another important factor behind the rapid increase in China's
trade surplus growth is the "Spring Festival effect."
Around the traditional Spring Festival period, due to holidays
and changes in employment, China's exports generally decrease while
imports expand as a result of festival consumption. This leads to a
narrowed trade surplus or a widened deficit.
According to China's lunar calendar, the Spring Festival period
this year, which ended in the middle of February, was much earlier
than last year's, which was prolonged until early March. The
"Spring Festival effect" had entirely disappeared by March this
year.
Given the unchangeable fact of a fairly big trade surplus growth
in March and the first quarter, China should handle its foreign
trade philosophy carefully.
A huge trade surplus, undoubtedly, would not be sustainable in
the long term. It is absolutely right to seek a balance of
international payments.
However, the fact that we should try to achieve such a medium-
and long-term target should not be interpreted as having to view it
as a short-term task and achieve it in the short run.
We should note that we have multiple policy targets. The efforts
to narrow the trade surplus, to an extent, conflict with economic
growth, employment and upgrading the industrial structure.
Net exports played a significant role in driving China's
economic growth last year. In the medium and long term, we need to
replace foreign demand with domestic demand to push our economic
growth. However, it is hard to realize it in the short term,
because a large-scale increase in investment would further
deteriorate the country's already serious excessive production.
And consumption growth hinges on an improved income distribution
structure and social security network, both of which cannot be
achieved within a short period.
Therefore, if we rush to take drastic measures to forcibly
narrow the trade surplus, we will risk derailing the economy.
The United States and Europe are the major trade partners of
China and also the main source of China's trade surplus. The
surplus is mainly attributable to the internal economic situation
of those countries.
The macro economies of the United States and Europe are faring
soundly, which determines that their imports and trade scale would
not decrease significantly. If China blindly sticks to a policy of
forcing down its trade surplus, it may lose the two markets that it
could have won through fair competition.
Analysis of the growth of the processing trade and general trade
indicates that China's foreign trade is displaying positive growth
trends. General trade is resurging and the value added by domestic
processing trade is increasing.
In the long term, those positive growth trends would contribute
to China's position in the international division of labor and the
steady and sustainable growth of the Chinese economy.
We should not seek a trade surplus, of course. But in achieving
a trade balance, we should not jeopardize our long-term development
goals.
For that reason, at least this year, we should not simply force
down exports to decrease the trade surplus in order to balance
foreign trade.
The author is an associate research fellow with the Chinese
Academy of International Trade and Economic Co-operation.
(China Daily April 26, 2006)
?
