Beijing Review: The US China trade surplus

This is from the blog China and Socialism. but is originally from the Beijing Review. Perhaps if China paid its workers better wages and improved working conditions its export goods would be more expensive. They would not export as much and this would help reduce the trade surplus but workers would have more spending power and hence local consumption would increase.



A Trade Off

Beijing Review vol. 50 no. 7

February 15, 2007

By ZHOU JIANXIONG

China's growing trade surplus has become a major concern for some of its major trade partners, such as the United States and the European Union. As the latest statistics from China's Customs Administration suggest, while the country's export growth rate fell 1.2 percentage points and that of imports rose 2.4 percentage points, the total surplus grew $75.59 billion last year to hit a record high of $177.47 billion. This proves to be a direct cause of friction between China and these trade partners. By the third quarter of last year, 70 cases of antidumping and countervailing investigations had been launched against China, making it the world's primary target of trade punitive measures. In addition, this trade surplus has brought about overheated investment in the wake of huge capital deposits building up in the banking sector, a phenomenon the Chinese central authorities have vigorously sought to control in recent years.

Many Chinese scholars and trade officials have attributed the trade surplus to the massive transfer of global manufacturing industries to China, which has boosted its export potentials, and led to an overcapacity that curbs demand for more imports. Others believe that a stronger global demand for Chinese processed goods may be the cause. This is substantiated by figures from the Ministry of Commerce showing that the trade surplus from processed products has been greater than that of general trade over the past six years. A higher savings ratio is also held accountable for the trade surplus, as it gives rise to an accelerating pace of investment as well as inadequate domestic consumption.

Whatever the causes, this trade surplus remains and is still rising, and given its status in the globalization process, cheap labor and other resources, and current stage of social development, China is likely to maintain an overall surplus in foreign trade over a relatively long-term period.

This, however, does not mean that the Chinese Government is taking an indifferent attitude toward the issue. On the contrary, various measures have been adopted recently to curb the rising surplus, including setting up a managed floating exchange rate system, lowering the rate of export rebate, and concluding of procurement contracts worth billions of dollars abroad. Chinese leaders have reiterated on many occasions that China has no intention of pursuing a huge trade surplus with any other countries, and the Minister of Commerce Bo Xilai has declared the reduction of trade surplus one of his top priorities for 2007. Conceivably, a series of new policy readjustments will be made to attain the goal in the foreseeable future, ranging from a more liberalized floating exchange rate system, replacing export incentives with new policies that encourage import and investment overseas, to optimizing the lineup of export commodities and taking fresh steps to stimulate domestic consumption.

Some Western observers have pinned their hopes on the appreciation of the Chinese yuan, assuming that a higher exchange rate of renminbi will be a miraculous cure to easing the trade surplus. This is only correct on paper, for China's trade surplus does not originate from an imbalance of international trade, but is a result of the changing setup of global manufacturing activities and international division of labor and market. Under such circumstances, China really needs outside help from some of its trade partners to cut its trade surplus, such as lifting restrictions on China's purchase of hi-tech products and clearing the barriers to Chinese business investment abroad.