China will continue to push the processing trade sector, the backbone of the country's overall exports and imports, Vice-Premier Wu Yi said Thursday.

The move will also benefit the global economy and overseas investors, experts pointed out.

The central government will further support the processing trade sector and step up efforts to readjust and upgrade its industrial structure in the coming years, Wu said at a national seminar held by the Ministry of Commerce (MOFCOM).

She also wants competent ministries and commissions to be active in improving the investment environment, intensifying intellectual property rights protection and fostering more professionals to facilitate the development of the sector.

"Processing trade plays an important role in China's opening up and economic development. And thanks to its fast growth, China now has become one of the world's big trading powers," Wu said.

Processing trade, which has grown by 243-fold since China launched the opening and reform drive in 1979, has helped to optimize the overall industrial structure, fatten foreign exchange reserves, and bring closer economic ties between the mainland and Hong Kong, Macao and Taiwan, according to the vice-premier.

It also helps to alleviate unemployment.

Processing trade volume reached a record US$404.8 billion or 48 percent of total trade value in 2003, according to Yu Guangzhou, vice-minister of commerce.

And favorable changes have also taken place in the sector in recent years, Yu said.

The processing trade, which was formerly labor-intensive, has become capital-intensive as overseas businesses invest heavily in manufacturing high-tech products such as compute hardware, chemicals and auto parts.

From January to October 2003, exports of machinery and electronic products totaled US$133.1 billion, taking up 70 percent of the entire processing trade volume.

Encouraged by the country's enormous market potential and cheap labor resources, foreign investors launched long-term investment in China.

"We now have seven joint ventures and two research and development centers in China, which produce with the same technologies as those used at our base (in Finland),"said Wang Jianhui, vice-president of Nokia (China) Investment Co Ltd.

Meanwhile, inward processing, a much more advanced and technology-demanding way of processing that uses imported materials other than those provided by clients, has become the mainstay of the sector, Yu said.

In 2003, some 74 percent of processing trade production was achieved through processing with imported materials.

The sector also serves well as a platform to lure overseas funds.

According to Yu, about 80 percent of the processing trade was financed by overseas investors in 2003.

Despite recent advances, Wu Yi cautioned that technological innovation by Chinese enterprises is still lagging far behind developed countries.

Giving priority to processing trade is of critical importance to maintaining China's economic growth rate, experts say.

"It remains a key engine of the national economy and a major booster of the gross domestic product," Fan Ying, a trade expert at the Foreign Affairs College in Beijing, told China Daily.

Meanwhile, the world economy will benefit from the fast growth of China's processing trade sector, she believes.

"Conducting processing trade with China is a wise choice, as production costs can be greatly slashed by using the country's relatively low-cost labour," Fan said.

The country is an ideal manufacturing base as multinationals in developed countries are readjusting their resources on a global basis.

In the bigger picture, she added, a flourishing processing trade in China may provide the international market with good products at low prices.

"This is a win-win situation for both China and developed countries. China only obtains a part, and in many cases, a small part of the returns from the processing trade,'' she said.

(China Daily January 16, 2004)