China's foreign trade has ripple effect

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Last updated at: (Beijing Time) Sunday, March 28, 2004

China's foreign trade has ripple effect

China's fast-growing dependence on foreign trade has made a significant impact on the country's economy and warrants timely attention. The rate of foreign trade dependence witnessed a steep rise and reached an all-time high of 60 per cent in 2003.

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China's fast-growing dependence on foreign trade has made a significant impact on the country's economy and warrants timely attention.

One of the most important indices measuring a country's trade openness and integration with the global market, the rate of foreign trade dependence is the percentage of total foreign trade volume to its gross domestic product (GDP).

China's rate has grown steadily since the nation opened up to the rest of the world in the late 1970s.

Basically, the rate was under 20 per cent between 1978 and 1984, which indicates a start-up of foreign trade.

It rose to 20-40 per cent between 1985 and 1999, a period when the trade witnessed fast growth.

The benchmark of 40 per cent was broken in 2000, and after China became a member country of the World Trade Organization (WTO) in 2001, the rate witnessed a steep rise and reached an all-time high of 60 per cent in 2003.

With the rate of foreign trade dependence skyrocketing, it is clear China is being integrated into the global economy with accelerated intensity. Foreign trade is one of the major factors propelling the nation's economy towards sustained, rapid and sound development.

Examination of trade dependence by region shows the developed areas, largely in the East and South China, depend more heavily on trade.

The average rate of foreign trade dependence of the 12 provinces and municipalities in East and South China was 74.5 per cent in 2000 while the rate in the 19 provinces and autonomous regions in the central and western regions was only 10 per cent.

In 2003, Shenzhen in Guangdong Province and Shanghai led the nation by having 356.3 and 148.7 per cent of the trade reliance rate respectively.

Of course, the quickly rising rate of China's trade dependence has remarkable influence on the domestic situation and the international environment, which can be observed from the following perspectives.

First, the growing trade reliance makes China's economy more internationalized and more exposed to global economic trends.

Along with the development of science and technology and the globalization of production and capital flow, countries are increasingly inter-related in business. World trade has swelled and nearly all countries rely more on trade between each other. So it is only natural for China to see an intensified trade reliance during the sweeping tide of globalization.

The economic prosperity of China belongs to not only itself, but the world.In the long run, the age has long past when China could strive for prosperity behind closed doors. It will definitely blend into the world, riding the same ups and downs in the global economy.

Second, China sees more frequent trade conflicts with other countries.

China does not have a widely diversified trade market. The trade volume between China and its three biggest trade partners - the United States, Japan and the European Union - accounts for about one half of its total volume.As a result, the economic performance of these major trade partners not only casts a direct influence on their trade with China, but also affects Chinese trade with the rest of the world.

The trade volume between China and the United States took up 5.4 per cent of China's GDP in 1997. The ratio climbed to 8.95 per cent in 2003.

The higher-than-normal reliance on trade with the United States is the fundamental reason for the constant Sino-US trade conflicts.

The United States has raised a series of anti-dumping investigations against Chinese colour TV sets, textile production and furniture since late 2003. The US accusations of "exporting deflation" and the calls for re-evaluating renminbi have never ceased.

All of these are signals that China is entering an era of international trade conflicts in the aftermath of increased trade reliance.

Third, the trade reliance growth is reshaping the structure of China's trade commodities and impacting its future employment structure.

Thanks to China's competitive advantages in labour-intensive commodities, goods like toys, textile products and shoes used to be the leading exports. Sectors producing these commodities attracted huge numbers of labourers.

Estimates show that exports worth 100 million yuan (US$12.05 million) could produce 120,000 jobs, which is to say the exports in 2003 supplied 52.6 million positions.

With the further fluctuation of the trade reliance figure, the commodity composition of the country's imports and exports will be altered, reshaping the employment structure here.

Since the trade reliance ratio is determined by many factors, including calculation of GDP, currency exchange rate, the trade method and the trade competence of the nation, the experts have not reached consensus on the "best" trade reliance rate for China. They are also divided on whether the current figures mirror the reality of China's trade status.

Those who agree hold that China is pursuing an export-orientated trade policy and should firmly stick to the policy choice. Those who are opposed think the ratio is overestimated and domestic demand is the main engine driving China's economy.

The key to the issue lies in determining how to obtain driving force from both the domestic market and the international market while promoting sustained economic growth.

It goes against the trend of globalization and regional integration if we put improper focus on stimulating domestic demand and ignore the overseas market.

Meanwhile, it is also impossible to give up a market of 1.3 billion people and over-stress exports.

China should therefore try to activate the domestic market while maintaining its current market share in foreign trade. In this way the country could still ensure the smooth progress of national economic development when either market fluctuates.

To this end, China should diversify its trade partnerships and tap new markets in Latin America, the Middle East and Africa.

On the other hand, efforts should be made to improve farmers' income, promote industrial restructure and stimulate domestic demand with financial and monetary policies.

Source: China Daily

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