China's foreign trade faces many challenges

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Last updated at: (Beijing Time) Thursday, April 08, 2004

China's foreign trade faces many challenges

On the list of the world trade for 2003 unveil by WTO on April 5, China ranked the third largest commodities importer after the United States and Germany. China will face more challenges ahead in its foreign trade.

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On April 5, the World Trade Organization (WTO) unveiled the ranking list of countries in the world trade in 2003. China was listed as the third largest commodities importer after the United States and Germany last year.

Song Hong, director of World Trade Research Office of the World Economics and Politics Institute under the Chinese Academy of Social Sciences, said during an interview on April 6: we should have a sober understanding of our status in the ranking list, China's foreign trade is facing an increasingly grim environment.

"This ranking list shows China holds a very important position in the entire world trade system. China's foreign trade has experienced very rapid growth since 2002. In 2003, China's total foreign trade volume soared 37.1 percent over 2002, the increase of imports was greater than that of exports. China's foreign trade witnessed deficits in the first two months of 2004, this situation is further expanding, which will be followed by the gradual reduction in China's foreign trade surplus." Said Song.

In Song's opinion, China's WTO entry has promoted the expansion of China's entire foreign trade, with fairly fast growth of imports and exports; in addition, the many promises China made of opening wider to the outside world have also expedited the growth of China's imports.

Song pointed out that among China's WTO membership commitments, several clauses are extremely disadvantageous to China.

The first is about China's non-market economy status. China is regarded as a non-market economy within the first 15 years of its WTO membership, that is, before the year 2016. In making judgment on dumping or subsidies, the costs of Chinese products are calculated in reference to the way employed for calculation by other countries, rather than base calculation on the real production costs of Chinese products. This is certainly very unfavorable to Chinese products.

The second clause is related to the transitional safeguard mechanism for specific products. Under this clause, a WTO member, within 12 years after its accession to this organization, can enforce particular safeguard regulations of a more protectionist color against Chinese products. This mechanism stipulates that if export products made in China increase drastically, which has thus caused disruption of the domestic market of a WTO member concerned, this WTO member can ask for consultations with China.

Additionally, aside from setting up generally applicable particular safeguard rules (i.e., transitional safeguard mechanism for specific products) against China-made goods, some WTO members have also set up particular safeguard regulations directed specifically against China's textiles. The international textiles quota system will be abolished on January 1, 2005. After its abolition, other countries will be free from quota restrictions. But for China, by 2008, there are still particular safeguard rules against Chinese textiles. Now the United States is prepared to unite with other countries to establish a kind of new quota regime after the cancellation of the textile quota system.

"So despite of China's WTO membership, the market facing China is, in fact, very limited, and the space for expansion is still relatively small. Under such circumstances, there will be many frictions, on the one hand, we want to increase our exports, but on the other hand, the foreign trade market is limited and developed countries adopt many measures to boycott China's exports. So China is facing a big challenge. Foreign trade as a whole tends to grow, the growth of imports will outdo that of exports. Such a trend is expected to continue, China's foreign trade will likely have deficits in the next few years." Song said.

Song also noted that generally the external environment was getting increasingly grim, the growth of exports will be slow down. Besides, along with the gradual fulfillment of China's WTO membership commitments, the widening openness of its markets will boost imports.

Song continued, "This situation involves both positive and negative aspects. The emergence of trade deficit, if any, will confront the RMB with the pressure of devaluation, China will then face more challenges and will be put in a passive position as Latin American countries were. To meet the challenges, it is very important to straighten out China's domestic economic cycling system. China should skillfully use foreign exchange to enhance the competitiveness of Chinese businesses."

By People's Daily Online

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