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Last updated at: (Beijing Time) Monday, August 25, 2003

Comment: Trade Imbalance not China's Choice

According to the latest statistics by the Chinese Ministry of Commerce, the trade volume between China and the United States amounted to US$56.4 billion in the first half of the year, and China has a trade surplus of US$23.45 billion -- a 32 per cent growth over the same period last year.


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A rational attitude should be taken when dealing with the issue of the trade imbalance between China and the United States.

According to the latest statistics by the Chinese Ministry of Commerce, the trade volume between China and the United States amounted to US$56.4 billion in the first half of the year, and China has a trade surplus of US$23.45 billion -- a 32 per cent growth over the same period last year.

Statistics from the US Department of Commerce show the trade volume between the two sides in the first five months of the year was US$65.12 billion and China's trade surplus was US$43.98 billion, a 27 per cent year-on-year rise.

Either set of statistics point to the prominence of the issue, which has caused wide-spread concern in the United States and become one of the most touchy issues influencing Sino-US trade ties.

Trade imbalance between China and the United States -- the largest developing and developed country respectively -- is, in a sense, inevitable.

The inevitability comes from the different economic characteristics of developing and developed economies. It is also attributable to their different roles in international labour division in a globalized era.

Given its abundant labour resources, China has comparative advantages in labour-intensive sectors such as textiles, garments, toys and shoes. The fact is that over 70 per cent of Chinese products exported to the United States fall into this category.

However, these products are mostly made from imported material, so the Chinese manufacturers only get modest processing returns from assembling imported raw material before exporting the finished products.

Moreover, in recent years, as they have been producing an increasing percentage of China's processed exports, foreign-funded manufacturers in China have pocketed much of the earnings.

As a result, huge hidden revenues taken by US enterprises are behind the US "trade deficit'' with China.

As to the great gap between the trade statistics offered by China and the United States, the key is transit merchandise.

Much of the goods, both sold from China to the United States and vice versa, are sent through Hong Kong, during which value is added.

According to a survey carried out by a statistical team from the Sino-US Joint Commission on Commerce and Trade, the value of Chinese products is, on average, 40.7 per cent higher than its original value if it goes from Hong Kong to the United States. This is much higher than the normal level in entrepot trade around the world.

Some major transit merchandise, like toys and knit wear, may even see a rise of 100 per cent.

Judging from the structure of exported items, the trade imbalance is produced by global labour divisions.

The US Department of Commerce statistics show the top five categories of goods China sold to the United States in 2002 were miscellaneous manufactured articles, parts for office machines and automatic data processing machines, telecommunications equipment and sound recorders, footwear and electrical machinery.

Some said China is switching its focus of exports from textile products to computers and telecommunication products.

However, it should be noted that 89.65 per cent of China's high-tech exports were in the form of processed trade. China's exports are still mainly labour-intensive products.

By contrast, the top five commodities the United States sold to China from 1997 to 2001 were aircraft, telecommunications equipment, picture tubes, oil seeds and oleaginous fruits, and automatic data process machines. They are all technology or capital-intensive products and agricultural produce with international competitiveness.

The exported goods of the two countries reveal their different positions in the chain of global labour division.

Instead of competitors, China and the United State are partners which can benefit from each other's advantages in labour.

However, because the United States has imposed harsh limits upon the exports of high-tech products to China, its comparative advantages in production over China cannot be fully brought out.

This is the root cause of the trade imbalance between the two countries.

Another important cause of China's trade surplus is the industrial restructuring of its neighbouring countries and regions since the mid-1980s.

After the restructuring, labour-intensive industries were moved to China. Those processing and assembling businesses, for which they had trade frictions with Europe and the United States, were also shifted to China.

As a result, a new trade pattern came into being in the Asia-Pacific region: China imports raw material and parts from its neighbours and exports finished products to the United States and Europe.

In this way, the market share of China's neighbours in the United States and their trade surplus with it are shifted to China.

The Institute for International Economics, a Washington-based non-profit research institute, found that about 90 per cent of products the United States bought from China were substitutes of goods from East Asia and Southeast Asia, most of which are toys, footwear and garments.

Only 10 per cent of Chinese exports have direct competition with US products.

Since the 1990s, the United States promoted a globalized production pattern that serves its national interests, moving labour-intensive, energy-consuming and pollution-causing sectors to other countries.

As a result, the internal trade of its multinational companies became a main reason for rocketing US trade deficit.

Products and services sold by branches of US multinationals across the world to the United States are also regarded as US-orientated exports.

As US investors enter more fields in China, exports by Chinese-based US multinationals will further decrease the US' export volume to China.

The author is from the Institute of International Relations at Wuhan University in Central China's Hubei Province.




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