One more milestone

China is on COURSE to becoming the world's largest trader

Even as China faced huge economic challenges last year, it may have knocked the United States off its perch as the world's largest goods trading nation.

Whether that happened will become clear soon when the US publishes figures for December, but earlier figures pointed strongly in that direction.

Until recently China had been the world's largest exporter of goods and the second largest importer of goods.

Last year, combined exports and imports rose 7.6 percent to $4.16 trillion (3.04 trillion euros), the General Administration of Customs says. Exports were worth $2.21 trillion, 7.9 percent higher than the year before, and imports were worth $1.95 trillion, 7.3 percent higher than the previous year, giving China a trade surplus of $259.7 billion.

The government has been on a mission to improve the quality of the country's overseas trade and the way it is conducted, and Zheng Yuesheng, a spokesman for the customs administration, says that an economic warming-up in China's big export markets contributed to last year's strong figures.

In the first 10 months of the year the combined value of China's exports and imports exceeded that of the US by $192 billion, and the pace of growth outstripped that of the US by 7 percentage points, Zheng says.

"The value of US exports and imports rose less than 1 percent in the first 11 months. Based on those figures, it's all but certain that China overtook the US to become the world's largest goods trader."

The value of US exports and imports in the 11 months to November was $3.59 trillion, about $570 billion less than the corresponding figure for China. The average monthly value of US trade in the 11 months was $326 billion.

The value of China's exports and imports surpassing $4 trillion last year was a milestone, Zheng says, $1 trillion having been surpassed in 2004, $2 trillion in 2007 and $3 trillion in 2011.

However, overall growth in trade last year failed to reach the government's target of 8 percent, the Ministry of Commerce says. In 2012, China's trade grew 6.2 percent; the government's target had been 10 percent.

Zhang Yiping, a researcher with China Merchants Securities Co Ltd, says the failure to meet the 8 percent target last year was "mainly owing to the unsatisfactory performance of imports".

But on the whole, "exports were not bad", Zhang says. "In emerging economies there was stronger demand for Chinese exports, while in the US and the European Union demand weakened."

Shen Danyang, a spokesman for the Ministry of Commerce, said at a news conference on Jan 16: "Basically China's foreign trade met last year's target, and the results were achieved with a lot of hard work. It was an outstanding success internationally given sluggish world demand and the uncertain recovery."

The country's export juggernaut is made up of numerous small and medium-enterprises like Ningbo Haixin Hardware Co Ltd in Zhejiang province.

Meng Yu, the company's sales manager, says its export business improved last year, even though its sales to the Japanese market fell, and despite rising labor costs, increasing competition and greater difficulty in borrowing from banks.

"We tightened internal controls to cut costs and improve productivity," Meng says. "We also dropped low-end products or markets to step up industrial upgrading and improve production. We also brought in more automation to cut the use of labor."

The company, a private business set up in 1995 which has 280 employees, sells fasteners such as bolts and nuts in the US, Northern Europe and Southeast Asia.

"China's exports are still strongly competitive globally," Meng says.

"Well-established factories give the country outstanding manufacturing ability, we are rich in resources, and the cost of labor is still lower than in many other places.

"Chinese exporters have made important productivity gains in recent years, but dealing in low-end products is becoming harder."

In recent years doubts have grown about China's export competitiveness as costs, especially for labor, have risen rapidly. Some foreign-invested exporters have moved their Chinese plants to Southeast Asian countries where labor is a lot cheaper.

"For private businesses, conditions are not so good for shifting domestic plants to Southeast Asian countries," Meng says.

"Though the cost of labor is much lower, there is a dearth of resources, and they rely on imports. In some countries, the political and economic environment is poor, not to mention the big differences in culture and language. There can also be opposition from local competitors or industrial associations."

Shen, the Commerce Ministry spokesman, says that China's trade growth not only boosts the country's economic growth and employment, but also creates huge employment and investment opportunities for its trading partners. He quotes a report from the World Trade Organization as saying that China is one of the top three import sources for 107 economies of the WTO's 159 members and one of the top three export markets for 42 members.

It is important to consider the upgrading and structural improvement in China's goods trade since the 2008 global financial crisis, Shen says.

"China's trade structure has made remarkable progress on many fronts over the past five years."

Emerging markets accounted for 61.2 percent of China's total exports last year, compared with 53.8 percent in 2008, the Ministry of Commerce says.

The mainland's top five trading partners were the European Union, the US, ASEAN, Hong Kong and Japan. But combined trade with the EU, the US and Japan accounted for 33.5 percent of China's total trade last year, compared with 35.2 percent from the previous year.

At home, the regional structure of exports was also given priority, with central and western regions accounting for 15.5 percent of China's exports last year, compared with 10.3 percent five years ago. The share of exports by private businesses, which reflects the vitality of China's exports, was 41.5 percent last year, compared with 26.8 percent five years ago.

In addition, the structure of Chinese exports has changed, high-tech accounting for 29.9 percent last year, compared with 29 percent in 2008. Last year, high-tech exports were worth $660.34 billion, an increase of 9.8 percent year-on-year, and exports of mechanical and electrical products were worth $1.27 trillion, an increase of 7.3 percent year-on-year, and about 57.3 percent of the country's overall exports, Shen says.

The share of general trade, as opposed to the processing trade - in which parts or raw materials are imported then re-exported as finished products once Chinese businesses process or assemble them - rose to 52.8 percent of all trade last year, compared with 48.2 percent in 2008, he says. The processing trade accounted for 32.6 percent of overall trade last year, down from 41.1 percent in 2008.

"Though China is now a leading goods trader, there is still a long way to go for it to turn from a large goods trader into a strong goods trader," Shen says.

China's export business remains on the medium and low-end of global industrial chains and has limited technology and value added. Challenges also include rising costs, appreciation of the renminbi and orders shifting to emerging economies, Shen says.

However, the ministry is cautiously optimistic about the country's trade prospects, he says.

"It's hard to say exactly what growth will be this year, but it is unlikely to be higher than last year."

In trade figures in the first quarter of this year, there are likely to be fluctuations because of rising costs, a shortage of capital, fierce competition and foreign trade figures in the corresponding period last year that are widely believed to have been overstated as the result of speculative capital inflow disguised as trade payments.

"The global economy is recovering, but the momentum is not solid," Shen says. "Costs keep rising at home, challenging small and medium-sized enterprises in particular. Competition is stiffening globally, and orders are drying up as developed economies encourage their overseas businesses to repatriate and Southeast Asian countries win more orders because of their lower costs compared with China."

Zheng, the customs administration spokesman, is also keenly aware of the challenges China's foreign trade faces this year.

"Foreign direct investment in Chinese manufacturing fell last year, suggesting weakened momentum in the country's exports in the near future. Processing trade imports rose 3.3 percent last year compared with the previous year, indicating that prospects for processing trade imports in the near term do not look bright.

"The central government will strengthen its efforts in economic restructuring, especially on overcapacity."

However, on the whole China's trade environment is better this year than it was last year, he says.

"With the global economic recovery, especially in developed economies, expectations of growth in trade have risen and will substantially improve the environment for Chinese exports. The government's plans for comprehensive reform and opening up inland areas will boost exports and imports. The rapid growth of China's overseas investment will help increase exports of equipment and intermediate products. At the same time, prices of global commodities are likely to remain low, reducing costs for Chinese importers."

China's foreign trade will enter a "period of steady growth" this year, with its quality and efficiency continuing to improve, so long as the global economy and the Chinese economy do not post big risks, he says.

Chen Hufei, a researcher at the Bank of Communications Ltd in Shanghai, says China's exports and imports are projected to grow about 8 percent this year because of gradual economic recovery abroad.

While China's trade has steadily grown and its structure has improved, trade friction involving Chinese exports last year did not help, Shen of the Commerce Ministry says.

Nineteen countries or regions instigated or undertook 92 trade remedy investigations into Chinese exports, up 17.9 percent from the previous year, the ministry says. They included 71 anti-dumping cases, 14 anti-subsidy cases and seven safeguard measures.

The US last year launched 19 Section 337 investigations under the Tariff Act, conducted by the US International Trade Commission and most often involving claims regarding intellectual property rights, compared with 18 cases in 2012.

Shen says: "In addition to frequent challenges from developed economies, emerging and developing countries are increasingly holding investigations into Chinese exports. China has probably been the most frequently targeted country in anti-dumping investigations for the past 18 years and in anti-subsidy investigations for eight years. China is the biggest victim of global trade protectionism."

He attributes rising trade friction to the slow economic recovery and resurgent protectionism after the global financial crisis in 2008. In addition, China's export markets were not well balanced as competition between Chinese exporters and their rivals intensified.

"Trade friction comes with China's transformation into the world's second-largest economy and largest exporter," Shen says.

"In the short term there is no way things could be any different."

The ministry improved its system for keeping track of any trade friction, has controlled disputes by consulting trade partners and gained "satisfactory results in several cases through the WTO disputes settlement body", he says.

Last year China launched 11 anti-dumping investigations into six imported products and one anti-subsidy investigation to guard against unfair competition from imports, Shen says.

Even though China has become, or is about to become, the world's largest goods trader, its trade in services last year significantly fell behind. It rose 12.4 percent year-on-year to $484.7 billion between January and November and is expected to exceed $520 billion for the year, up more than 11 percent and making the country the third biggest trader in services, the Commerce Ministry says.

Xu Wei, a researcher at the China Center for International Economic Exchanges, says: "China's size of trade in services was dwarfed by that of some developed countries. China's exports of services accounted for less than 10 percent of its combined exports of goods and services, much lower than the world's average of 20 percent."

The prospects are good for China to maintain rapid growth of trade in services as that sector becomes the new driver of China's economy, he says.

China's structure of services exports and imports is also moving toward modern services supported by knowledge and technology.

lijiabao@chinadaily.com.cn

A container terminal in Nantong, Jiangsu province. China still has a long way to go to turn from a large goods trader to a strong one, says a senior official. Xu Congjun / for China Daily

(China Daily Africa Weekly 01/31/2014 page1)