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Declining Foreign Trade Could Spell Trouble for China’s Economy

02-14 13:49 Caijing
Although major institutions hold mixed views about exactly when a deficit could emerge, most experts agree that a single month trade deficit will likely occur in the first three months of the year.

By staff reporter Chen Yan

On Feb. 10, the General Administration of Customs released China's import and export data for January. The figures indicate a continued decline in import and export growth. Exports in January reached US$149.94 billion, decreasing 0.5 percent year-on-year; while imports fell 15.3 percent to US$122.66 billion. The overall declines in foreign trade left China with a trade surplus of US$27.28 billion.

Trade Deficit on the Horizon?

Various data indicate that China could be heading towards a trade deficit in the near future. Although major institutions hold mixed views about exactly when a deficit could emerge, most experts agree that a single month trade deficit will likely occur in the first three months of the year.

In addition, the China Federation of Logistics & Purchasing and National Bureau of Statistics recently announced that China's manufacturing purchasing manager index (PMI) rose to 50.5 in January from 50.3 in December. This is the second consecutive month that the index has rebounded after falling below 50 (the line that separates expansion from contraction) and hitting a 30-month low in Nov. 2011. However, the new export sub-index also showed that current import and export trade is still sluggish, indicating that the latest rebound in PMI has been driven largely by domestic demand.

Stable Policy vs. Adjustable Policy

For China, rising labor costs are inevitable. At the same time, export enterprises aim to benefit from export tax rebate policies and policies which slow down the appreciation of the yuan.

Zhang Yongjun, researcher at the China Center for International Economic Exchanges, said that the introduction of government subsidy policies would not be conducive to improving the international trade environment and could be met with trade barriers. Zhang added that in order to help export trade enterprises, it is best to start by relaxing the overall credit environment and offering directed credit to certain eligible companies.

Zhejiang International Trade & Economic Research Center Director Zhang Handong said that the government should help foreign trade enterprises weather the storm through various measures such as relaxing regulatory optimization of the administrative examination and approval process, helping companies cope with rising labor costs, and solving the financing problem in the financial sector.

A research report issued by the Agricultural Bank of China Strategic Planning Department stated that China has entered a period of strategic opportunity to expand domestic demand. Export enterprises must execute a shift in thinking and make full use of existing surplus production capacity to tap into domestic market opportunities. Yuan Jiang, who authored the report, told Caijing that relevant government departments should offer export tax incentives and policy support to export enterprises with idle capacity. The government should guide domestic consumption and explore a linkage mechanism whereby the focus on exports shifts to expanding domestic demand, added Yuan.

Shift in China’s Development Mode Needed

Vice Minister of Commerce Zhong Shan previously stated that optimizing the international market layout and the domestic regional arrangement will be important measures to speed up the transformation of China's foreign trade development mode.

Many experts have argued that China should look to reduce its dependence on foreign trade with developed countries and actively explore developing countries and emerging markets. Moreover, the nation must further tap into the export potential of the central and western regions and make efforts to optimize the trade area layout.

Full article in Chinese: http://magazine.caijing.com.cn/2012-02-12/111675642.html

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