China cannot afford to overlook woes in wake of financial crisis

07:54, June 28, 2010      

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Some western commentators have said China has benefited from the international financial crisis; however China is in an unenviable position as it must quickly adjust its production model to remain competitive given the world has changed from two years ago.

Because China is integrated in the global market, it must adapt to the situation, said Zhao Jinping, a researcher with the Development Research Center of the State Council (cabinet), Sunday.

In February 2009, more than 20 million migrant workers lost their jobs as a consequence of a tide of factory closures at the start of the financial crisis, according to data provided by the Ministry of Agriculture.

Zhou Dewen, a researcher with the Wenzhou Promotion Association for Small & Medium Enterprises, said that in Wenzhou, 10 percent of enterprises were closed since entrepreneurs had lost confidence in continuing their businesses in the wake of the financial crisis.

China's exports bore the brunt of the financial crisis from the very start, said Wang Zhile, director of the Research Center on Transnational Corporations affiliated to China's Ministry of Commerce.

China's exports started to decline at the end of 2008. In the first half of 2009, exports dropped a massive 21.8 percent year on year, according to data provided by the General Administration of Customs of China. It was not until December 2009 that monthly exports returned to growth after 14 months of decline.

Statistics show that China's exports in the first five months this year rose 33.2 percent to 567.7 billion U.S. dollars. However, experts say a low comparison base made the growth look stronger than it actually was.

The financial crisis has led to increasing trade frictions and trade barriers globally, said Dong Yan, a researcher with the Institute of World Economics & Politics under the Chinese Academy of Social Sciences (CASS).

China has became the No.1 target of trade protectionists and biggest casualty of trade frictions, said Zhong Shan, vice commerce minister, in a meeting earlier this month.

The outlook for exports in the near future is unclear given uncertain demand for Chinese products coupled with barriers going up, experts say.

China's State Council has approved the scrapping of export tax rebates on 406 products including some steel and non-ferrous metals, fertilizers, as well as some plastic, rubber and glass products, effective July 15, the Ministry of Finance (MOF) said.

The move was employed by the Chinese government most probably to reduce trade frictions, said Qi Xiangdong, deputy secretary general of China Iron & Steel Association.

The scrapping of export tax rebates domestically, along with the anti-dumping duties levied on Chinese Oil-Well Pipe by the United States, made the export of oil pipe products to the United States impossible, said Piao Longhua, Chairman and CEO of Wuxi-based WSP Holdings Limited, an oil pipe producer listed on New York Stock Exchange.

China's steel products exports in 2009 declined 58.5 percent year on year to 24.6 million tonnes, according to Chinese customs.

As China quickly changes its pattern of production, there is a risk of a gap between international and domestic demand, as yet domestic demand cannot replace the international market.

Furthermore, Chinese workers' wages going up raises the cost of production. So, China needs to do more to make its products stand out as the increased production cost will likely be passed onto consumers.

To achieve that goal, China's work force must become more efficient, innovative and skillful.

The predicament of rising trade barriers, rising wages and the possibility of a rising yuan means China must adapt quickly.

Source: Xinhua


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