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Cheap exports reduce inflation

By Wu Jiao (China Daily)
Updated: 2007-04-20 08:32
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A survey produced by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) has said that while China has often been criticised for its trade surplus, its low-priced exports have actually helped hold down world inflation.

Between 2001 and 2005, the country's exports helped reduce the annual inflation rate in the United States by 0.28 percentage points, in the European Union by 0.37 percentage points, and in Japan by 0.65 percentage points, the UNESCAP economic and social survey of Asia and the Pacific, which was released on Wednesday, said.

China is now responsible for about 90 percent of the world's toy exports, 50 percent of its apparel exports and 16 percent of its exports of consumer electronics.

In addition, its purchase of US assets helped reduce US interest rates by about 0.15 percentage points during the period, the survey said.

However, the survey said that China's imports in the energy sector has pushed up world inflation by increasing commodity prices. Its huge demand for oil, for example, contributed to a 22.5-percent increase in the world oil price between 2001 and 2005.

In total, China's imports of energy resources helped boost the annual inflation rate in the US by 0.23 percentage points, in the EU by 0.35 percentage points, and in India by 1.11 percentage points, over the period 2001 to 2005.

The country accounts for 45 percent of the world's cement imports and 20 percent of its aluminium and copper imports.

It is also now ranked as the world's third largest trader, having experienced a sevenfold increase in trade since 1990.

While China's labor-intensive manufacturing processes pose a serious export challenge to countries with similar production methods in the region, the survey said that there remain wide-ranging opportunities for Asian and Pacific countries to export technology-intensive intermediate products to China.

"High and middle-income regional economies have great opportunities to export to China. The highest overlap is for Japan, the Republic of Korea and Singapore, followed by the middle-income ASEAN economies of Thailand and Malaysia," the survey said.

Based on purchasing power parity, the survey ranked China as the world's second largest economy and estimated its economic growth last year contributed one-third of the world total.

However, the survey said that China'sGDPgrowth might decrease to 9.9 percent this year, with exports and export-based investments being the major driving forces.

However, the further appreciation of the yuan and weak electronic demand would reduce exports, while a tighter domestic policy would slow investment, the survey said.

The survey also warned that China's growth relies excessively on exports and export-related investments, while private consumption had declined to a record low.

Domestic consumption accounted for 60 percent of GDP between 1990 and 1996 and 52 percent in 2005, 27 percent lower than the world average.

To boost these figures, UNESCAP said the central government should encourage people to reduce their precautionary savings by investing more in education, pensions and healthcare. It should also try to increase consumer borrowing.

However, Wang Huijiong, an expert with the development research center under the State Council, said that the country currently lacks a mature fiscal and financial system that would ensure the sound management of consumer borrowing.

He said that bringing personal income in line with GDP growth, especially for people in rural areas, would provide the most effective solution to falling domestic consumption.

(China Daily 04/20/2007 page4)