2004-01-20 10:43:27
Foreign trade growth a double-edged sword
  Author: JIA HEPENG,China Business Weekly staff

While it is proper to applaud the tremendous growth in China's foreign trade, we must be careful not to become overly optimistic about the accomplishment.

The major reason for remaining cautious is the fact that China's massive exports generated relatively less wealth for the nation - and its people - compared with developed countries and other developing nations.

Despite the boom in coastal regions, where export-oriented manufacturers gather, the vast rural hinterland remains very poor.

The most recent customs statistics indicate China's foreign trade volumes last year reached US$851.21 billion, up US$230.4 billion from the previous year.

Last year, China exported US$438.37 billion worth of commodities and imported US$412.84 billion worth of goods and services. The country had a US$25.53-billion trade surplus.

Last year - when China became the world's fourth-largest trader - marked the fastest growth in China's exports since 1980 when the country opened itself to the world.

While the achievement is nothing short of astonishing, the fact remains those exports created very little profit.

Ministry of Commerce (MOC) statistics indicate half of China's exports are goods produced by foreign-invested companies - with imported materials. The local added value of these goods created in China accounts for 35 per cent of their total value.

Even the small portion of local added value - the 35 per cent - is mostly obtained by foreign producers as profits. Only a small part of the added value goes to Chinese in the form of salary, taxes and the cost to either rent or buy factories.

Each pair of leather shoes exported by China reportedly sells for US$5.

That situation has not changed, despite the upgrading of Chinese exports from low-end garments to more expensive electronic appliances, which should net greater profits.

MOC's statistics also indicate exports of engineering and electronic products were valued at US$110 billion, or 25 per cent of the total value of China's exports, last year.

That is a major progress.

Yet, the local added value of the engineering and electronic exports is about 16 per cent.

Chinese goods are internationally renowned for their high quality and low prices.

Cut-throat competition forced manufacturers to lower prices, even though, in the past year, prices of many raw materials, such as oil and coal, rose significantly.

Many manufacturers - facing rising production costs and falling profits - are trying to reduce employees' wages and/or extend their hours of work.

Employers have been able to reduce their labour costs to extremely low levels due to the tremendous supply of workers and the lack of legislation and enforcement to protect labourers.

As a result, the massive growth of China's exports has not created jobs for the tremendous number of unemployed.

There are at least 150 million surplus labourers in China's vast countryside, especially in the hinterland.

Some have suggested China has a low employment rate because its service industry is lagging. But how can the service industry develop without consumers?

The economy's reliance on exports has also resulted in the nation's dependence on the inflow of foreign direct investment. Why? Foreign investments bring both capital and foreign firms' share of the market.

Yet, the massive inflow of foreign investment hides the inefficiency that comes from using domestic capital; for example, the massive savings in China's banks which the executives refuse to lend.

Banks in China had issued a combined 15.67 trillion yuan (US$1.89 trillion) in loans by the end of October.

Meanwhile, residents' and corporate bank deposits had grown to 20.41 trillion yuan (US$2.46 trillion), indicate statistics from the People's Bank of China, the nation's central bank.

That is a 4.74-trillion-yuan (US$574.98-billion) difference.

Of course, we do not want to deny, or in any way diminish, the great contribution China's exports have made to the nation's economy.

And we want to stress the huge growth in exports should not be blamed for the problems cited earlier.

Exports will no doubt continue to stimulate China's economy.

But the export-oriented economic growth model should be redesigned.

The Chinese Government should do more to develop the domestic market, especially by adopting unbiased policies affecting farmers and the subsidization of the rural populations.

The government must ensure these people become labourers - and consumers.

The government's spending to subsidize farmers and construct rural infrastructure has been as efficient as spending to construct infrastructure for export-oriented manufacturing factories.

However, governments, both local and central, prefer spending money on the latter.

China's export model, characterized by foreign investors' processing of imported materials, should also be adjusted.

A group of Chinese-owned brands of high-quality and high-priced products should be exported so Chinese firms and Chinese workers can earn greater profits.

That should be the exports' greatest impact on China's economy.

(Business Weekly 01/20/2004 page1)

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