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China's trade surplus with US misread

Updated: 2010-03-16 16:26
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China's large trade surplus is often used by the United States to argue why China should allow its currency to rise.

Yet most US officials ignore a very important fact: a majority of China's exports to the US are produced by US-funded companies and huge profits go back into American pockets.

China's surplus, foreign companies benefit

Chinese Premier Wen Jiabao said at Sunday's news conference that half of China's exports came from the processing trade -- where imported components were assembled at factories in China and 60 percent were made by foreign-funded companies or joint ventures with foreign partners.

"Therefore, to restrict trade with China is tantamount to causing difficulty for the businesses of your own countries," he said.

According to statistics provided by the Ministry of Commerce, 55.9 percent of China's exports were produced by foreign companies last year. The proportions were 83 percent and 75 percent respectively for high-tech products and electronic products.

And, over 90 percent of high-tech products exported to the US were made by foreign enterprises.

Big surplus, small profit

Researchers at the University of California at Irvine conducted a case study of Apple's iPod to examine which countries captured the most economic value from iPod production.

The conclusion showed that only four dollars was retained in China, with the bulk going to the designers, retailers and component suppliers.

It seems unfair therefore that the full price of an iPod, roughly $300, instead of four dollars, was counted as part of China's exports to US.

"China's cheap labor helps foreign companies cut wage costs and increase their profits. Ironically, the rising profits go into foreign bosses' pockets and China is left to take the blame for the trade imbalance," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.

Hi-tech export controls

Premier Wen said the country's trade imbalance would be much smaller if the US would approve more high-tech exports to China.

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Wen stands firm on yuan

The US government unveiled new export control regulations in 2007, which blocked the export of 20 categories of products to China, including  airplane engines, lean oil, lasers and avionic devices.

Statistics showed that 18.3 percent of China's high-tech imports came from the US in 2001. The figure dropped to eight percent in 2008, partially reflecting harsh US export controls to China.

"On one hand, the United States asks Beijing to reduce its trade surplus. On the other hand, it refuses to sell high-tech commodities to China. What really does it want?" said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission.

"I sincerely hope the Europe Union and the United States will recognize China's market economy status and lift restrictions on the exports of high-tech commodities to China because that will help promote trade balance in the world," Wen said Sunday.