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How can China’s exports rebound? This is a question Shi Shiwei thinks about almost obsessively. Shi, a professor at the University of International Business and Economics and a scholar of Sino-EU trade, hopes he can do something to lift China’s gloomy export numbers.
“The severe economic situation naturally makes people think of expanding domestic demand. That’s important, but this doesn’t mean we’ll give up on exports,” Shi said.
On August 24-25, Premier Wen Jiabao paid a visit to Guangzhou, Foshan and Dongguan in Guangdong Province to investigate the economic situation and proposed that targeted measures be adopted to promote exports and stabilize economic growth.
Shi believes the reason Premier Wen is focused on export growth has to do with the weak foreign trade.
According to figures released by the General Administration of Customs, in the first eight months of this year, China exported$1.31 trillion worth of goods, up by 7.1 percent over a year ago. Exports of general trade grew by 7.7 percent and those of processing trade climbed 3.5 percent. In August, yearon-year growth of exports rose slightly to 2.7 percent from 1 percent in July, but fell dramatically from 11.3 percent in June. “China’s exports now face big difficulties,” Shi said.
The Chinese Government has already taken action to boost exports, including raising the tax rebate to 17 percent from 13-15 percent of some exported goods, such as furniture, garments and toys.
“We are earnestly implementing the State Council’s measures of stabilizing foreign trade growth and reducing export costs for enterprises,” said Jiang Yaoping, Vice Minister of Commerce, at a press conference on August 28.
Gloomy exports
Exports were once—and to a certain degree continue to be—an engine of China’s rapid economic growth. The 2008 global financial crisis caused demand in China’s exports to tumble. In the second quarter of this year, China’s GDP growth was 7.6 percent, the lowest in three years.
Although exports are beginning to show signs of improvement, market stability remains elusive. Many Chinese economists believe that steady export growth is the key to continuous economic increase.
Stimulating growth in domestic consumption has been touted by some as a driver of economic expansion. But given the fact that China’s social security net remains weak and inflation high, the likelihood of consumption fueling economic growth is low. Domestic consumption makes up 70 percent of the U.S. economy. But it is unlikely for China to realize a similar rate in the near future. Exports, therefore, remain the spine of its economic growth and cannot readily be abandoned. And China must reverse its slump in exports in order to retain a sound economy.
For Shi, the current decline in China’s exports is attributed to a number of reasons, including the sluggish markets in Europe, the United States and Japan, the country’s three traditional export destinations.
According to data from the National Bureau of Statistics, bilateral trade between China and the European Union, the country’s largest export market, dropped 1.9 percent between January and August. From the 1990s until the outbreak of the global financial crisis, China’s exports to the EU had grown at an annual rate of 20 percent.
Trade between China and Japan, Asia’s second largest economy, has fared no better. In the first eight months of this year, trade between the two giants dropped 1.4 percent. Although the U.S. economy is showing signs of recovery, the perils of high unemployment and the desire to bring manufacturing jobs back home are no boons for Chinese exports, not to mention the rampant trade protectionism and anti-dumping probes in the United States, with anti-subsidy investigations underway against China’s photovoltaic industry, for example.
Other reasons for China’s slumping exports are growing domestic labor costs and the appreciation of the renminbi, which positions “made-in-China” in the international market at a disadvantage, said Shi. Since the exchange rate reform in 2005, the renminbi has appreciated by 30 percent against the U.S. dollar, squeezing the profits of Chinese enterprises and weakening their competitiveness.
Although China’s trade volume was rated the world’s highest in 2011, China’s foreign trade development remains unbalanced, according to Shi. Since 60 percent of Chinese exports are from the processing trade and lack independent brands and distribution networks, foreign companies and retailers are earning large profits. “Under this blanket of low profits, heavy losses will be inflicted upon Chinese enterprises when market demands decrease,” said Shi.
The goal of export growth in 2012 set by the Chinese Government is 10 percent, which is hardly ambitious but still difficult to achieve.
Li Jian, a research fellow at the Chinese Academy of International Trade and Economic Cooperation (CAITEC) affiliated with the Ministry of Commerce (MOFCOM), said that at present trade-related policies, including those on tax rebates, credit and renminbi exchange rate, are all stable. The CPI growth has remained low, and so the cost pressure of China’s export-oriented enterprises is somewhat alleviated.
“The biggest variable factor affecting China’s exports is still external demand, and the external environment is still not optimistic,” Li said.
Change for better
Shi found that many Chinese export-oriented enterprises are changing their dependence on European, U.S. and Japanese markets and tapping into the potential of markets in Latin America, Africa and the Middle East. Many emerging industrial countries are developing rapidly and their purchasing power is rising. Compared with products made in Europe and the United States, Chinese products, with better cost-performance value, are more suitable. Some high-end products made in China, such as automobiles, are finding it difficult to enter the European and U.S. markets but are suitable for consumers in emerging countries. China’s bulk commodities, such as mobile phones, computers and other electronic products, are also very popular in developing countries for their high cost-performance ratio.
“Therefore we should not simply shift to expanding domestic consumption just because exports recede. Domestic demand is of course important, but we should pay due attention to external markets,” Shi said.
Shi also believes that it isn’t easy for domestic enterprises to simply shift from the international market to domestic consumption. Being used to the processing trade, exportoriented enterprises are highly dependent on foreign enterprises in product design, brand establishment and distribution networks. To transfer to the domestic market, these enterprises need to build up their own distribution networks and design their own products suitable to Chinese consumers, both of which are huge challenges. Hence, many enterprises would ultimately return to an export-oriented focus.
“Exports should still be maintained because we still have advantages,” Shi said, adding that although the United States and European countries have hopes of reviving their manufacturing sectors, few enterprises are willing to do so.
China’s exports still face plenty of uncertainty. Chinese enterprises should therefore be more pro-active in making strategic adjustments, said Shi. Export-oriented enterprises have three choices: shifting focus to the domestic market, building up their own brands, and directly transfering to other industries. Each enterprise should choose the most favorable path based on its own strengths.
Policy suggestions
When visiting Guangdong Province, Premier Wen came chalk-full of suggestions to improve exports, including government plans to improve policies on stabilizing exports, accelerating the process of tax rebates and enlarging the scale of export credit insurance. Furthermore, China should improve financial services and guide financial institutions to introduce more products to evade exchange rate risks while paying close attention to market changes. Finally, China should encourage enterprises engaged in foreign trade to nurture intellectual property rights, develop independent brands and build up international distribution networks.
Industrial insiders believe that given the present circumstance, the government should take full advantage of financial institutions and raise the coverage of export credit insurance, cut insurance premiums and enlarge the scale of insurance payouts.
Zhang Lei, a macroeconomic analyst at Minsheng Securities Co. Ltd., said export credit insurance is an international practice adopted by a number of countries to support exports. The aim is to encourage enterprises to expand exports because the government assumes foreign exchange risks. To strengthen the support of export credit insurance is conducive to both expanding exports and reducing international anti-subsidy litigations against Chinese products and reducing trade frictions. Compared to international levels, China still has room to cut premiums to export credit insurance.
Mei Xinyu, a research fellow at the CAITEC, believes that China must adopt the following measures in order to revitalize its exports. First, the measure that helps its trade partners, such as the EU, to stabilize their economies, thus benefiting China from bailing out heavily indebted European nations. Second, the effort to carry out taxation and financial policies for stabilizing exports. Third, accelerated pace in implementing foreign aid plans to help drive up exports and overseas engineering contracts.
MOFCOM spokesman Shen Danyang said the ministry is considering adopting measures in two respects. First, it will implement government policies to support the steady growth in foreign trade, particularly helping enterprises to reduce export costs and improving the trade environment. Second, it will continue encouraging enterprises to transform their pattern of growth and upgrade their structures.
“We will strengthen efforts in developing a pluralistic market and try to realize the goal fixed at the outset of this year,” Shen added.
“The severe economic situation naturally makes people think of expanding domestic demand. That’s important, but this doesn’t mean we’ll give up on exports,” Shi said.
On August 24-25, Premier Wen Jiabao paid a visit to Guangzhou, Foshan and Dongguan in Guangdong Province to investigate the economic situation and proposed that targeted measures be adopted to promote exports and stabilize economic growth.
Shi believes the reason Premier Wen is focused on export growth has to do with the weak foreign trade.
According to figures released by the General Administration of Customs, in the first eight months of this year, China exported$1.31 trillion worth of goods, up by 7.1 percent over a year ago. Exports of general trade grew by 7.7 percent and those of processing trade climbed 3.5 percent. In August, yearon-year growth of exports rose slightly to 2.7 percent from 1 percent in July, but fell dramatically from 11.3 percent in June. “China’s exports now face big difficulties,” Shi said.
The Chinese Government has already taken action to boost exports, including raising the tax rebate to 17 percent from 13-15 percent of some exported goods, such as furniture, garments and toys.
“We are earnestly implementing the State Council’s measures of stabilizing foreign trade growth and reducing export costs for enterprises,” said Jiang Yaoping, Vice Minister of Commerce, at a press conference on August 28.
Gloomy exports
Exports were once—and to a certain degree continue to be—an engine of China’s rapid economic growth. The 2008 global financial crisis caused demand in China’s exports to tumble. In the second quarter of this year, China’s GDP growth was 7.6 percent, the lowest in three years.
Although exports are beginning to show signs of improvement, market stability remains elusive. Many Chinese economists believe that steady export growth is the key to continuous economic increase.
Stimulating growth in domestic consumption has been touted by some as a driver of economic expansion. But given the fact that China’s social security net remains weak and inflation high, the likelihood of consumption fueling economic growth is low. Domestic consumption makes up 70 percent of the U.S. economy. But it is unlikely for China to realize a similar rate in the near future. Exports, therefore, remain the spine of its economic growth and cannot readily be abandoned. And China must reverse its slump in exports in order to retain a sound economy.
For Shi, the current decline in China’s exports is attributed to a number of reasons, including the sluggish markets in Europe, the United States and Japan, the country’s three traditional export destinations.
According to data from the National Bureau of Statistics, bilateral trade between China and the European Union, the country’s largest export market, dropped 1.9 percent between January and August. From the 1990s until the outbreak of the global financial crisis, China’s exports to the EU had grown at an annual rate of 20 percent.
Trade between China and Japan, Asia’s second largest economy, has fared no better. In the first eight months of this year, trade between the two giants dropped 1.4 percent. Although the U.S. economy is showing signs of recovery, the perils of high unemployment and the desire to bring manufacturing jobs back home are no boons for Chinese exports, not to mention the rampant trade protectionism and anti-dumping probes in the United States, with anti-subsidy investigations underway against China’s photovoltaic industry, for example.
Other reasons for China’s slumping exports are growing domestic labor costs and the appreciation of the renminbi, which positions “made-in-China” in the international market at a disadvantage, said Shi. Since the exchange rate reform in 2005, the renminbi has appreciated by 30 percent against the U.S. dollar, squeezing the profits of Chinese enterprises and weakening their competitiveness.
Although China’s trade volume was rated the world’s highest in 2011, China’s foreign trade development remains unbalanced, according to Shi. Since 60 percent of Chinese exports are from the processing trade and lack independent brands and distribution networks, foreign companies and retailers are earning large profits. “Under this blanket of low profits, heavy losses will be inflicted upon Chinese enterprises when market demands decrease,” said Shi.
The goal of export growth in 2012 set by the Chinese Government is 10 percent, which is hardly ambitious but still difficult to achieve.
Li Jian, a research fellow at the Chinese Academy of International Trade and Economic Cooperation (CAITEC) affiliated with the Ministry of Commerce (MOFCOM), said that at present trade-related policies, including those on tax rebates, credit and renminbi exchange rate, are all stable. The CPI growth has remained low, and so the cost pressure of China’s export-oriented enterprises is somewhat alleviated.
“The biggest variable factor affecting China’s exports is still external demand, and the external environment is still not optimistic,” Li said.
Change for better
Shi found that many Chinese export-oriented enterprises are changing their dependence on European, U.S. and Japanese markets and tapping into the potential of markets in Latin America, Africa and the Middle East. Many emerging industrial countries are developing rapidly and their purchasing power is rising. Compared with products made in Europe and the United States, Chinese products, with better cost-performance value, are more suitable. Some high-end products made in China, such as automobiles, are finding it difficult to enter the European and U.S. markets but are suitable for consumers in emerging countries. China’s bulk commodities, such as mobile phones, computers and other electronic products, are also very popular in developing countries for their high cost-performance ratio.
“Therefore we should not simply shift to expanding domestic consumption just because exports recede. Domestic demand is of course important, but we should pay due attention to external markets,” Shi said.
Shi also believes that it isn’t easy for domestic enterprises to simply shift from the international market to domestic consumption. Being used to the processing trade, exportoriented enterprises are highly dependent on foreign enterprises in product design, brand establishment and distribution networks. To transfer to the domestic market, these enterprises need to build up their own distribution networks and design their own products suitable to Chinese consumers, both of which are huge challenges. Hence, many enterprises would ultimately return to an export-oriented focus.
“Exports should still be maintained because we still have advantages,” Shi said, adding that although the United States and European countries have hopes of reviving their manufacturing sectors, few enterprises are willing to do so.
China’s exports still face plenty of uncertainty. Chinese enterprises should therefore be more pro-active in making strategic adjustments, said Shi. Export-oriented enterprises have three choices: shifting focus to the domestic market, building up their own brands, and directly transfering to other industries. Each enterprise should choose the most favorable path based on its own strengths.
Policy suggestions
When visiting Guangdong Province, Premier Wen came chalk-full of suggestions to improve exports, including government plans to improve policies on stabilizing exports, accelerating the process of tax rebates and enlarging the scale of export credit insurance. Furthermore, China should improve financial services and guide financial institutions to introduce more products to evade exchange rate risks while paying close attention to market changes. Finally, China should encourage enterprises engaged in foreign trade to nurture intellectual property rights, develop independent brands and build up international distribution networks.
Industrial insiders believe that given the present circumstance, the government should take full advantage of financial institutions and raise the coverage of export credit insurance, cut insurance premiums and enlarge the scale of insurance payouts.
Zhang Lei, a macroeconomic analyst at Minsheng Securities Co. Ltd., said export credit insurance is an international practice adopted by a number of countries to support exports. The aim is to encourage enterprises to expand exports because the government assumes foreign exchange risks. To strengthen the support of export credit insurance is conducive to both expanding exports and reducing international anti-subsidy litigations against Chinese products and reducing trade frictions. Compared to international levels, China still has room to cut premiums to export credit insurance.
Mei Xinyu, a research fellow at the CAITEC, believes that China must adopt the following measures in order to revitalize its exports. First, the measure that helps its trade partners, such as the EU, to stabilize their economies, thus benefiting China from bailing out heavily indebted European nations. Second, the effort to carry out taxation and financial policies for stabilizing exports. Third, accelerated pace in implementing foreign aid plans to help drive up exports and overseas engineering contracts.
MOFCOM spokesman Shen Danyang said the ministry is considering adopting measures in two respects. First, it will implement government policies to support the steady growth in foreign trade, particularly helping enterprises to reduce export costs and improving the trade environment. Second, it will continue encouraging enterprises to transform their pattern of growth and upgrade their structures.
“We will strengthen efforts in developing a pluralistic market and try to realize the goal fixed at the outset of this year,” Shen added.