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The Mini Decline Will Rebound
More stable growth in foreign trade is on the cards
By Deng Yaqing | NO. 13 MARCH 30, 2017
Workers produce hi-end steel plates at a steel plant of Baogang Group in Baotou, Inner Mongolia on December 8, 2016 (XINHUA)

Despite a year-on-year decline of 0.9 percent in 2016, China has performed satisfactorily in trade in the first two months of this year, casting a hopeful light on the country's foreign trade prospects for 2017.

According to statistics from the General Administration of Customs, the total value of China's imports and exports amounted to 3.89 trillion yuan ($564.9 billion) in the first two months of 2017, up 20.6 percent year on year. More specifically, exports reached 2.09 trillion yuan ($303.5 billion), a year-on-year increase of 11 percent, and imports stood at 1.8 trillion yuan ($261.4 billion), a year-on-year increase of 34.2 percent, with the trade surplus narrowing from the same period last year by 46.1 percent to 293.65 billion yuan ($42.64 billion).

"Generally speaking, people have good reasons to be cautiously optimistic about the future trend of China's foreign trade," said Zhou Junsheng, a financial commentator. Zhou noted that China's foreign trade will maintain positive growth in tandem with the slow recovery of the international market.

What's worth mentioning is that the country's imports surpassed its exports by 60.36 billion yuan ($8.77 billion) in February, marking the first trade deficit since February 2014.

The deficit occurred mainly because of the Spring Festival holiday (January 27 to February 2), Bai Ming, Deputy Director of the International Market Research Division under the Chinese Academy of International Trade and Economic Cooperation (CAITEC), told the 21st Century Business Herald.

"Companies always rush and finish the export orders and avoid placing import orders before the seven-day holiday, in order to save inventory costs," said Bai.

Despite that, there is no denying that import values in February experienced a dramatic surge of 44.7 percent year on year.

Bai attributed the trend to the soaring price of bulk commodity imports as well as the remarkable increase in import volume. In February, China imported 83.49 million tons of iron ore and ore concentrate and 31.78 million tons of crude oil, up 13.4 percent and 3.5 percent year on year, respectively.

"This indicates that policies targeted at stabilizing growth have begun taking effect and businesses are more motivated to engage in manufacturing," said Bai, adding that the depreciation of the Chinese currency, the yuan, was also a factor that should be taken into consideration.

Workers produce carbonless copy paper at a factory based in Wuzhi County, Jiaozuo City, Henan Province on February 24(XINHUA)

Heading for stable growth

"Compared with developed countries, China has seen its strength constantly improving in terms of technological research and development as well as services," said Li Jian, a research fellow at CAITEC.

Currently, a series of changes have taken place in China's foreign trade. "In the past, China's exports were mostly low-end labor-intensive products, while now the proportion of large-sized complete sets of equipment, hi-tech products and self-owned brands are climbing," said Li, pointing out that the structure of traded Chinese-made commodities has been optimized.

According to Li, China is transforming from just earning processing commissions to profiting off processing and assembling procedures and independent marketing.

Besides that, foreign-funded enterprises now account for a lower proportion of China's foreign trade, while Chinese private enterprises have now become the new main source of exports. In addition, coastal provinces that have been pioneers in structural adjustments in foreign trade are now taking a lead in the recovery, said Li.

As the WTO's Trade Facilitation Agreement formally entered into force in February, global trade costs will be lowered by 14.3 percent on average, and global exports will increase by $1 trillion, according to the WTO. As the International Monetary Fund predicted, the chances are good for global trade to grow by 3.8 percent, much higher than originally expected.

"This year, China will score better in foreign trade. Big fluctuations or even dollar-denominated negative growth may occur accidentally, but average growth will be higher than that of last year," said Bai.

Furthermore, Bai found that many favorable factors are generating positive economic momentum, such as the establishment of the 11 free trade zones in China, increasingly prosperous cross-border e-commerce, the implementation of the Silk Road Economic Belt and 21st-Century Maritime Silk Road Initiative and so on.

In the 2017 Government Work Report, emphasis was laid on promoting the stable growth of imports and exports instead of pursuing digital evaluation. Policymakers also put forward a series of measures to improve the quality of imports and exports and to optimize the structure of foreign trade.

"As the global supply-demand relation constantly changes, China should not fix its eyes solely on the growth of its trade volume, but pay more attention to added value, brand building and structural optimization, so that the country can realize a transformation from being a big trading nation to a strong one," said Zhang Jianping, Director of the Research Center for Regional Economic Cooperation under the CAITEC.

Risks and uncertainties

By and large, China's foreign trade is now on track to stable growth. However, more time is needed to see whether the favorable trend can be sustained.

"These days, the external environment for China's foreign trade is very harsh and complicated, such as the rise of trade protectionism, the uncertain policy signal released by the Trump Administration, and the upcoming general elections of several European countries," said Zhang.

At the beginning of this year, Chinese iron and steel industries encountered anti-dumping and countervailing investigations from the United States, who finally decided to impose a 70 percent anti-dumping duty and a 190 percent anti-subsidy duty on these Chinese exports. As a consequence, in February, the country exported 5.75 million tons of rolled steel, down 29.1 percent year on year.

Li noted that trade policies favored by the new administration in the U.S. tend to protect American interests.

Now, House Republicans are championing a major reform called border adjustment tax in Washington, which would levy a 20 percent tax on imports, and is supposed to encourage companies to make goods in the United States and remove the incentive for companies to move jobs overseas solely for tax reasons.

On February 21, the then Chinese Minister of Commerce Gao Hucheng said all countries should abide by international rules when formulating trade policies, and China will make careful evaluations and respond accordingly if the U.S. unveils a detailed plan on the border adjustment tax.

On the other side, an array of major powers in Europe including Germany, France and Italy are electing new leaders this year. Affected by the United Kingdom's exit from the European Union and the Trump Administration taking office, some populist politicians may come into power, which would lead to the escalation of trade protectionism, said Li.

In addition to that, there are other challenges to the stability of trade growth. China's exports concentrate on manufactured goods, with labor-intensive products accounting for 20 percent of the total, while imports are mostly bulk commodities like crude oil, coal and iron ore, said Zhou.

China's economic growth is to some extent dependent on the international market, and the soaring prices of bulk commodities will increase pressure on domestic enterprises, said Zhou.

Copyedited by Bryan Michael Galvan

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