Opportunity for reforms

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(China Daily)
Updated: 2008-11-12 07:40

The new record trade surplus China registered last month does not offer a good enough reason for optimism. Net exports climbed simply because import growth has declined sharper than that of exports.

Of course, falling consumer inflation, in the meantime, does not justify too much pessimism that the Chinese economy is in the grip of a deflation risk.

Slowing inflation not only comes as a victory in China's battle against runaway price hikes since last year but also provides a rare opportunity for the country to advance reforms that will make its economic growth more sustainable.

Latest statistics show that China's trade surplus hit another historic monthly high of $35.2 billion in October. The figure has gained for the fourth consecutive month since July.

However, such robust growth of trade surplus does not point to an export boom. In spite of their competitiveness in international markets, a global economic slowdown has already hit Chinese exporters hard. The country's export growth has slowed from 26.9 percent in July to 19.1 percent in October.

Worse, the surge in trade surplus highlighted a severe plunge in imports, a clear sign that domestic demand is shrinking more rapidly than anticipated. China's import growth dived from 33.7 percent in July to merely 15.6 percent last month.

If actions are not taken quickly to boost China's domestic demand, the growth of trade surplus will increase the country's imbalance with trade partners to an unsustainable level very soon.

To a certain extent, it is such a sense of urgency that has propelled the Chinese government to kick- start a massive fiscal stimulus program to boost domestic demand. At a time when the world is counting on China's continued growth as a buffer against the ongoing financial crisis and economic slowdown, nothing is better than boosting spending at home that China can do to help avert a prolonged global recession.

Falling consumer prices can reduce the danger of a new spike in inflation as the government implements the 4 trillion yuan ($586 billion) fiscal stimulus package to revive economic growth.

Growth of China's consumer price index fell from a nearly 12-year-high of 8.7 percent in February to 4 percent in October from a year earlier.

With inflation retreating across the world, China is again positioned to introduce its long-awaited price reforms for energy, utilities, and key resource sectors.

Admittedly, such reforms will more or less add to the burden of domestic consumers and companies by including environmental cost into the price of energy and resource products. But as the growth of the world's energy and resource demand steadily outpaces the growth of the supply that nature can afford, it makes no sense to expect a return to the era of cheap oil.

Besides, a hike of consumer prices at this moment may be even needed to persuade domestic businesses to expand investment.

(China Daily 11/12/2008 page8)