Building a sound economy

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Last updated at: (Beijing Time) Saturday, November 22, 2003

Building a sound economy

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It is generally thought that China will be a major workshop of the world in this century, as foreign investment and export increase. This offers good prospects for China's future economic development. But now is also actually a time for vigilance.

Overseas retailers' total purchases in China reached US$30 billion in 2001. Wal-Mart, the world's No 1 retailer, spent US$12 billion in China, accounting for 8 per cent of its total purchases. And this figure is expected to reach US$15 billion this year. But what implications does this have for China?

According to a Wall Street Journal report, Wal-Mart forced the wholesale price of a product with a Chinese company down from US$7 to US$4. (The retailing price of similar products in the US market is between US$15 to US$40) and pushed the company to the edge. Half of the workers were laid off and the remaining ones have to work more hours but for less pay. Nevertheless, the company is still finding it hard to make a profit.

Retail giant Wal-Mart is able to do that because small companies depend on their orders. Small suppliers never get the chance to grow bigger as there is no space for the accumulation of capital.

That is the case for China -- gaining very limited profits with an increasing export volume.

Recently, the US Government has been pressing China to devalue its currency, while some US newspapers, such as the New York Times and the Wall Street Journal, are standing in support of China. Why? Simply because trade with China is the best deal. US companies are making the most profits.

And Wal-Mart has caught China's weak points. First, a sound market economic system has not yet been built up in China. Besides cheap products and labour, The country does not boast other strengths. Second, China's domestic purchasing power is not strong since labour is cheap. Companies rely on exports and firms like Wal-Mart become the winners.

Therefore, it is discerning to make Chinese labour "expensive" enough to work on high-level production activities and thereby get more purchasing power.

In order to do this, China needs to improve the education level of the population and establish a sound market economic system, which includes an independent legal system, the free flow of information and transparent government.

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