China's soaring trade surplus has unsurprisingly propelled trade
officials from both the European Union and the United States to
take turns visiting Beijing recently to find solutions to the trade
imbalances between them.
However, fixated only on immediate reduction of their trade
deficits, these foreign visitors have more often than not ignored
the underlying driving force behind China's trade growth.
Also, busy explaining that the country has no intention of
pursuing a trade surplus, Chinese officials have yet to recognize
its rising trade power as a result of ongoing structural changes in
the global production and trade system.
Much has been said about the importance and impact of China's
entry to the World Trade Organization five years ago. But a greater
understanding of the significance of China's integration into the
world economy is still missing.
While its monthly trade surplus keeps hitting new highs, China's
foreign trade in the first 10 months rose 24.1 percent year-on-year
to reach US$1.43 trillion, surpassing the volume for the whole of
2005.
Given recent efforts to raise export taxes and cut import
tariffs, policy-makers ostensibly do not take comfort in the
surging trade volume.
Rocketing exports of goods, the production of which involves
mass consumption of energy and resources as well as heavy
pollution, will seriously hinder the country's pursuit of
sustainable growth. A customs duty that discourages energy- and
resource-intensive exports is needed to push domestic enterprises
to raise their energy efficiency and environmental awareness.
A ballooning trade surplus will certainly add to the tensions
between China and its major trade partners. But it is not a result
of protectionism. Instead, it stems from China embracing economic
globalization, expediting specification across borders in line with
each country's comparative advantages.
As the most populous country in the world, China benefited
hugely from its competitive labor cost during its rise as a global
manufacturing power. And so far, most Chinese exports are from the
processing trade.
By adding value to materials or components that they process
with cheap labor, Chinese export businesses make profits, no matter
how thin their margins might be.
Hence, until the country's labor cost rises considerably,
foreign companies will find China an ideal place for manufacturing.
In fact, the huge inflow of foreign investment in recent years
bears full testimony to China's appeal as a cost-cutting
manufacturing base.
This structural change in the division of labor across the globe
cannot be dealt with using instant cures. It requires long-term
efforts to adapt industries in China and other countries to the new
economic landscape.
(China Daily November 16, 2006)
