With export growth slowing and a trade surplus shrinking, China is looking inward to keep its economy humming.
China’s economic growth this year will be secured by its 1.3 billion citizens who still need to feed, clothe and house themselves, regardless of what happens in the rest of the world, says the country's Commerce Minister.
“Fundamentally, people still need to consume, to meet their daily consumption needs,” Chen Deming said on the sidelines of the National People’s Congress, the annual meeting of nearly 3,000 appointed delegates in China’s legislature. “We have very big space for adjustment. In the next few years, China will become the biggest importer in the world. By 2020, China will become the biggest domestic market in the world.
“China is very confident. With our population of 1.3 billion, they are our strongest and most accountable force backing us in our trade policies.”
It was a confident statement for a nation increasingly sure of its economic role in the world, despite a new revised gross domestic product growth target of 7.5 per cent that is the lowest in nine years. A new U.S. law imposing duties on subsidized imports from nations including China clearly irritated Mr. Chen, who criticized the United States for not getting its own trade surplus under control. The trade imbalance between the United States and China remains a sore point; the United States accuses China of keeping its currency artificially low to promote exports of cheap goods, while China says it has no obligation to change its currency policy to suit anyone else.
“I suggest we have open, heart-to-heart dialogue,” Mr. Chen said drily in response to a reporter’s question about the new U.S. trade bill. “We follow the rules of the WTO [World Trade Organization]but we have no obligation to follow domestic laws or regulations in any specific country that go beyond international rules.”
Despite the bravado, China’s export industry is expecting a rough year ahead. Mr. Chen said a government target of 10 per cent growth in imports and exports this year can be met, but that much of that growth will occur in the second half of 2012. By comparison, last year exports rose 20.3 per cent, year on year, and imports expanded 24.9 per cent.
Last year’s trade surplus also shrank 15 per cent from the previous year, to $155-billion (U.S.), its lowest level since 2005. That decline is expected to continue, Mr. Chen said.
To make up for the fall in exports, in particular to Europe, China will focus on courting emerging markets for its exports and on turning export industries toward more value-added items. Mr. Chen said the country’s industries are already producing more medium-value rather than low-cost products, and government wants to encourage the trend.
“Industrial upgrading will be important this year,” said Yu Miaojie, a professor of economics specializing in international trade at Beijing University, who argues that part of the burgeoning war of trade words between China and the United States is because both nations’ competitive advantages in exports are falling.
“If China tries to maintain that high export demand, it must export goods to different destinations. We should switch to new, emerging countries like Brazil and Russia,” he said.
There is a silver lining: Falling exports will help ensure inflation is kept under control, and lower inflation combined with the promise of new tax rebates may mean Chinese consumers can afford to spend more to keep their economy growing.
“China has clearly entered into a substantial economic slowdown: both the private property market and government infrastructure investment are finally correcting after two boom years. Yet the economy has not collapsed, largely thanks to still robust consumer spending and manufacturing investment,” wrote Andrew Batson at research firm GK Dragonomics. “Beijing can manage this deceleration without resorting to the desperate measures it employed during the global financial crunch of late 2008. Our biggest worry is not whether China can survive the current slowdown, but whether the right policies are being put in place to support productivity gains over the longer term.”