'Grim situation' for China's foreign trade
- By Tom McGregor
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CRI, October 21, 2011
The rise of China's economy has stemmed mostly from its foreign trade sector that has boosted an already strong manufacturing base. The nation transformed from one that faced bleak economic conditions to the world's second-largest economy in a matter of three decades. However, China's trade outlook appears bleak as the global economy sputters, potentially devastating circumstances are looming ahead and domestic labor costs and inflationary pressures are rising at higher levels.
Consequently, China's government and trade ministers are warning that the country faces a "quite grim situation" in regards to its foreign trade outlook as new global uncertainties are becoming more significant factors.
China's Ministry of Commerce (MOC) announced on Wednesday an alert about foreign trade. Shen Danyang, an MOC spokesman, said at a press conference that, "the import and export situation will be quite grim in the fourth quarter, and next year, or at least in the first quarter of next year."
Perhaps, the long-term outlook appears "grim" as well. Many American and European consumers are contending with massive credit card debt and a high rate of unemployment which are compounding difficulties. It's near impossible to pay off credit card debt without a source of job income or savings to fall back on.
A major reason why the economy is stumbling has been due to excessive consumer debt. To continue utilizing credit cards, customers must pay back some of the debt in installment plans. This financial situation is likely continuing for a few more years. But if consumers show restraint and pay back debts then a stronger global economy could emerge in which consumers are more wise about their spending habits.
In the meantime, Chinese exporters must wait for this business cycle to phase out. China's economy has grown too dependent on foreign trade. When the global economy runs smoothly, this strategy is effective, but during bad times, China's exporters suffer.
Accordingly, China has an opportunity to transform economic planning to adapt better to the situation. The government could emphasize a more service-oriented drive that encourages more domestic consumption of Chinese manufactured goods, while also promoting an influx of white-collar jobs and urge a greater entrepreneurial spirit.
Yet the transition would not be easy, since the best method to inspire the rise of new companies would be through shifting priorities away from State-Owned-Enterprises. SOEs generate much of their revenues from taxpayers; dollars. Due to a dependence of government cash, SOE fight to block out competition from the private sector.
If China transforms itself then the country's trade issues would hold less relevance for the overall economy. Besides, future trade conflicts seem inevitable, since governments from around the globe are trying to protect jobs by favoring trade protectionist measures. If Beijing opposes their efforts, Western politicians would simply 'scapegoat' China for recent economic woes.
China is an easy target for Western elected officials as many adhere to 'China Threat' assumptions. So if Chinese officials criticize them, they become heroes of a populist movement and accuse Beijing of utilizing intimidation tactics.
Beijing's best solution would be to ignore the trade debate and instead focus its attention on boosting sectors of China's economy that are unrelated to foreign trade. China has an extra incentive to make these changes as soon as possible.
According to the China Daily, "China's exports slowed to 17.1 percent year-on-year growth in September from 24.5 percent growth in August, according to custom's figures. Imports in September climbed 20.8 percent from a year earlier, compared with the 30.2 percent year-on-year expansion in August."
China's trade surpluses may soon disappear. In September, China's trade surplus dropped for the second straight month, falling by 12.4 percent year-on-year.
Nevertheless, Shen points out the positive aspects of these figures by saying, "the determination and forceful acts of the Chinese government to promote trade balance."
He noted that the trade surplus only accounted for approximately 4 percent of China's foreign trade total and just over 2 percent of the country's gross domestic output in the first three quarters while both percentages dropped.
He said, "it's unreasonable to question China's trade surplus and attempt to press China with that."
As reported by the China Daily, "Shen said China's foreign trade maintained stable and relatively fast growth in the first three quarters and is on good operation overall.' However, he predicts trade growth will retreat later this year due to such factors as rising costs, exchange rate changes and carry-over effects."
The MOC intends to maintain the stability and policies, the RMB's exchange rate, trade conveniences and other particulars to sustain exports while aggressively expanding imports, Shen said.
China is making the smart move for more imports as this could help reduce global trade friction. Beijing would be better served by avoiding trade disputes amidst a climate of trade protectionism. Meanwhile, China's economy could better transition towards an economy that pumps up more domestic consumption so that Chinese companies would be less reliant on the export market.
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