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| Rethink Trade Surplus |
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A surprisingly steep rise in China's trade surplus necessitates a thorough review of the country's trade growth. Before taking action, policy-makers need to determine the cause-effect relations between rocketing trade figures and other challenges the Chinese economy faces. China's trade surplus hit US$14.5 billion in June, a record figure for the second month in a row. Exports rose 23 percent year-on-year to US$81.3 billion, outpacing imports which were up by 19 percent to US$66.8 billion last month. As a result, the country's trade imbalance with the rest of the world has risen to about US$61.5 billion so far this year, up 55 percent year-on-year and set to surpass last year's record of US$102 billion. Such a rapid growth in net exports is surely unexpected. Last year, when the country's trade surplus was more than triple the US$32 billion surplus in 2004, helping secure a 9.9-per-cent growth in gross domestic product (GDP), Chinese policy-makers and economists generally expressed more worries than optimism over its growth momentum in the near future. Few expected that the country's trade surplus could continue to expand to serve as a major growth engine for the Chinese economy. The added stress the central government placed on boosting domestic consumption clearly revealed a growing sense of anxiety about the possible negative impact a shrinking trade surplus may exert on the country's GDP growth this year. As extensive investment growth is increasingly deemed undesirable during the country's pursuit of sustainable development, domestic consumption has naturally been highlighted as the alternative source of growth in case that trade surplus stops surging. However, China's trade sector has defied all these predictions and notched up a strong performance in the first half of the year. This indicates that policy-makers and most observers at home and abroad may have missed or underestimated the underlying driving force behind China's trade growth. Upon the release of China's latest trade figures, foreign observers were quick to point out that the new record trade surplus would renew pressure for a further revaluation of the renminbi. Meanwhile, there are also domestic concerns about a ballooning trade surplus and current account that might counter the central government's effort to squeeze credit and cool down the sizzling economy. It has been reported that the Ministry of Commerce is considering cutting export tax rebate rates in order to discourage certain exports. All such concerns appeared warranted in the sense that China's trade growth is directly and closely related to other major economic problems the country faces. But a swelling trade surplus does not have to be the cause of these problems. Hence, reining in the growing trade surplus will not help address them. Instead, the trend of accelerated exports and relatively slower imports may be an inevitable result of the rapidly changed status of China in the global trading system. As an emerging global manufacturing centre, China is bound to attract more overseas companies to build processing plants here. Nearly 90 percent of the country's trade surplus has come from processing trade since 2000, while over 70 percent of the surplus came from foreign-invested firms. Policy-makers should have a firm grasp of the changing structure of the country's trade sector. The record trade surplus is only a result of such changes spawned by both China's comparative advantages and deepened globalization. (China Daily July 12, 2006) |
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