• Thu
  • Dec 18, 2014
  • Updated: 2:01pm

China's rapid trade growth is at an end, says top government official

Beijing official says rising labour costs and global competition mean the mainland can no longer rely on foreign trade for high growth rates

PUBLISHED : Wednesday, 21 May, 2014, 1:11am
UPDATED : Wednesday, 21 May, 2014, 4:58am

The mainland's era of high trade growth is over, a senior Commerce Ministry official warned, who added that in the short term the country would still need to rely on investment and exports to drive growth.

Zhang Ji, head of the ministry's Foreign Trade Department, cited rising labour and financing costs and intensified global competition for the forecast.

"Generally speaking, the era for foreign trade to maintain continued high growth is gone forever. Our country's foreign trade is expected to operate at a reasonable range of medium- to low-growth rate," he told a press briefing in Beijing yesterday.

Labour costs in China's coastal regions are double, or even triple the costs in countries such as India, Vietnam, and Cambodia, he said. During 1995-1999, China's manufacturing workers' average labour cost was US$729 per year, or a fortieth of that of the US and a quarter of that in Thailand.

Meanwhile, companies in European countries and the United States have reduced their investment in China as governments there rolled out policies to lure their funds back home, said Zhang.

He also noted the rising tensions with Vietnam recently sparked by China's deployment of a mobile oil rig in disputed waters in the South China Sea as a factor that may hurt bilateral trade.

The mainland reported export growth of just 0.9 per cent year on year in April, reversing a 6.6 per cent decline in March. That represents a sharp slowdown from the pace seen in the past few decades.

Between 1978, when Deng Xiaoping initiated the national policy to reform the economic system and open up the previously tightly regulated market, and 2013, China's total foreign trade expanded by an average of 15.9 per cent annually while exports rose 16.3 per cent on average per year.

But demand from developed nations has cooled for China-made products while the mainland's workforce has also been shrinking.

China has already missed its annual trade growth targets for two consecutive years. Last year, the total value of exports and imports grew 7.6 per cent, shy of the annual target of 8 per cent.

Zhang said China would face "a very arduous task" of meeting its annual trade growth target of 7.5 per cent.

"Should we meet this target, we would have to make sure the growth rate for exports and imports to average at 11.3 per cent each month starting in May. That would still require very hard work," Zhang said.

The central government has pledged to transform the mainland's economic structure, hoping to cut its reliance on investment and exports in favour of consumption.

Importing more commodities from abroad would help China ease bottlenecks in resource supplies, Zhang said.

After China's economic growth eased to 7.4 per cent in the first quarter from 7.7 per cent in the fourth quarter of 2013, the State Council recently rolled out steps to bolster foreign trade growth, including cutting fees on exports and imports and expediting export rebates.


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At present, the lack of Chinese residents’ spending is due to the slow growth rate of their income.
How much they spend is entirely determined by how much they earn.
They save not only for precautionary reasons --- they do not have more or enough income now which can be used for consumption.
They tend to save enough money and engage in one-time spending, for purposes of wedding, house or car buying, etc.
In India, for every growth of 100 dollars, 70-90 dollars become the residents’ income, whereas in China, there are only 40-50 dollars.
We cannot expect the Chinese residents to rapidly increase their spending given the background of slow income growth.
Numerical data show that, in China, increased income goes mostly to the pockets of the government and the SOEs.
(From ‘How Unique is China’s Model’)
Many people use China’s unsophisticated social security phenomenon to explain the high savings rate and insufficient consumption expenditure of the Chinese residents.
This is not the case, both conceptually and numerically.
The social security systems in many third world countries are also immature, but their citizens are still spending quite a lot.
A large part of the economic growth of India comes mostly from spending --- even though the Indians save even more than the Chinese.
In India, the contribution of consumption expenditure toward economic growth is much higher than that in China.
For a long time in the past, Japan was regarded as a country with incomplete social security.
Even in the US, the social security system also left much to be desired --- at least it was not as good as that in the north European countries.
But why were these people willing and able to spend ?
According to Liao Zi Guang, it does not really matter how high or low the yuan's exchange rate is, what's problematic is that Chinese workers' wage rate is not high enough.
High property price is not the heart of the matter. Given rising and high wage rate, the high property price is no longer a problem.
Suppressing the property price will affect the too-connected property market and hurt greatly many parts of the economy.
The main promotion criterion of the local cadres should not be GDP. It should be the wage rate index.
Solving this issue does not mean every other problem will be solved, but the number of problems will be much less than before.
Wiithout solving this problem, other problems can hardly be solved.
(Chinese readers: ****www.caogen.com/blog/Infor_detail/40851.html)
Not until the income of the Chinese citizens is raised will they be able and willing to spend more, thereby turning China's economy into one which is driven by healthy domestic consumption, not external demand.
Those Chinese local governments (LGs) which are emergently in need of cash can request the central government (CG) to lend part of its US dollar reserves to them.
With the US dollar as guarantee, the LGs can apply for yuan loans from the policy banks.
The yuan loans so obtained can be used subsequently to support the part of the LGs which are most in need of cash.
Say for example, 80% of the GDP of Guangdong (Canton) Province relies on exports, which have yet to fully recover after the recent Great Crisis.
Through the above guarantee arrangement, the Guangdong government can obtain lots of cash to promote the upgrade of technology of their SOEs and SMEs.
After a few years, when the economy stabilizes and further develops, the massive amount of tax revenue generated by the enterprises can be used to repay the US dollar debts to the CG.
(From the Chinese book ‘The Blessings and Curses of Finance’ by Liao Zi Guang)
At least 5 reasons cause China's recent manufacturing recession, as reflected by the latest manufacturing PMI data:
(1) heavy taxes,
(2) cost of capital too high,
(3) labour cost keeps on rising,
(4) the yuan keeps on revaluing,
(5) international trade wars, etc.
As a result, part of the Chinese manufacturers (mostly SME owners) either emigrates, or speculates in the property market, or participates in the shadow banking market.
The country's SMEs are being crowded out by the big SOEs.
(From the Chinese book 'Can the "New Deal" change China ?' by Larry Hsien Ping Lang)


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