Commerce minister: Chinese exporters average profit margin only 1.8%

15:04, March 31, 2010      

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Currently, China's export-oriented enterprises averaged a profit margin of only 1.8 percent, said China's Minister of Commerce Chen Deming in a recent interview with the Washington Post.

"If the U.S. imposes punitive tariffs on products imported from China for yuan exchange rate issue, the Chinese government will have no choice but to take actions in response," Chen says in an article published on the Web site of China's Ministry of Commerce (MOFCOM).

Thin profit margin

Citing detailed statistics on Sino-U.S. trade, Chen argued that U.S. export control against China aggravates the trade imbalance between the two countries.

China's hi-tech imports increased rapidly in recent years, but the United States' share dropped from a little over 18 percent in 2001 to less than 8 percent in 2009. If the share in 2001 is used as a benchmark, U.S. companies had lost at least 33 billion U.S. dollars worth of export opportunities in 2009.

According to relevant Chinese chambers of commerce, by 2020 China's import demand on integrated circuits, machine tools and civil avionics alone will reach over 600 billion U.S. dollars. But many of these products are subject to U.S. export control.

Chen Deming said he contacted the U.S. Commerce Department on buying helicopter engines to aid rescue efforts after the Sichuan earthquake in 2008, but was told to wait for permission from the defense department. He never heard back, and China bought Russian engines instead.

It is unfair to urge China to appreciate yuan when trade is controlled, Chen said. "Obviously trade flow is determined by supply and demand instead of the exchange rate. "

"Benefits not only for China"

"One would be looking narrowly at the whole trade story by equating China's trade-in-goods surplus with China winning and the U.S. losing," Chen says in his article.

According to research by Morgan Stanley, imports from China saved American consumers about 100 billion U.S. dollars in 2009. "Restrictions on imports from China would have to come at the expense of the American people, especially the low-income population."

Processing trade accounts for around 60 percent of China's exports to the United States. In processing trade, Chinese companies normally produce by order and have little control over design, transport, sales and other activities. The fact that the import value of goods declared at U.S. customs is higher than the export value declared at Chinese customs further inflates the surplus figure. Following this methodology, the actual U.S. deficit with China for 2009 should be about 60 billion U.S. dollars less than the official US figure.

Chen quoted an example from the Economist that an iPod carrying the "Made in China" label is sold for 299 dollars, but the Chinese assembling plant only gets paid 4 dollars. Some 160 dollars goes to U.S. companies that do the designing, shipping, marketing and retailing.

The United States' gains go beyond trade in goods, Chen said. Currently, some 30,000 American-funded companies operate in China. The results of a survey suggest American-funded companies reported over 153 billion U.S. dollars in sales revenues, 75 billion U.S. dollars of exports and nearly 8 billion U.S. dollars in profits in 2008.

According to the American Chamber of Commerce in China's 2009 White Paper on American Business in China, about 74 percent of American businesses in China made profits in 2008 and 81 percent were optimistic about their business outlook in China for the next five years.

In services, the United States has held China in deficit for many years and its surplus with China has been growing by an annual rate of 35 percent in the past five years. U.S. accounting firms, banks, insurance firms, securities firms and other service-providers are all doing well in China. In the absence of complete statistics on China-U.S. trade in services, rough estimates suggest China's deficit may range between 13 billion U.S. dollars and 15 billion U.S. dollars.

By People's Daily Online
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