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Market-Driven Model
Cover Stories Series 2011> Market-Driven Model
UPDATED: December 5, 2011 NO. 49 DECEMBER 8, 2011
Advancing by Opening Up
During the past decade, China has promoted development and reform, a road it will continue to follow in the next 10 years

When China first entered the WTO, 15 percent of its agricultural product needs were imported. In 2010, the rate rose to 20.2 percent. Among China's agriculture trade deficits, most come from the United States. Soybean and corn imported from the United States have accounted for 70-80 percent of China's vegetable oil production capacity.

China's agriculture still isn't able to compete internationally. The country's agriculture trade deficits will continue to exist and expand, and the proportion of imported farm produce will continue to rise.

In the past decade, because of closer Sino-U.S. trade ties and imbalances in trade, some say that U.S. deficits with China deprive Americans of jobs. Yu can hardly agree.

MOFCOM figures showed that in January-October 2011, China's total trade surplus was $120 billion, while its surplus with the United States hit $160 billion. "This imbalance could only be explained that China has trade deficits against many other economies," Yu said.

According to Yu, the situation is the result of industrial labor division and reasonable resource allocation from globalization. China doesn't pursue a trade surplus, and its overall principle is to stabilize exports, adjust the trade structure and realize a trade balance.

As for the trade imbalance between China and the United States, Yu said China's surplus mainly comes from processing trade. Many U.S. enterprises previously located in Japan, the Association of Southeast Asian Nations (ASEAN), South Korea or Taiwan were moved to China after it entered the WTO to seek low costs. The United States used to face trade deficits against these countries or regions, but after the American enterprises moved to China, the deficits were also transferred.

"Actually the proportion of U.S. trade deficits against all of Asia among the total U.S. trade deficits is almost the same as before, but the previous deficits against Japan, ASEAN, South Korea and Taiwan have gone to China," Yu said.

The United States' persistence over the renminbi appreciation issue is a problem for Sino-U.S. trade relations. However, although the renminbi has appreciated by 30 percent in the past year, the employment and economic conditions in the United States have not improved.

Yu said the export-oriented economic growth pattern China has adopted since 2001 has seriously damaged its own resources and environment. China is now at the intersection of transforming its economic growth pattern, and it should deeply reconsider the consequences of export-oriented trade development pattern and make readjustments at proper time.

The future is more important

Celebrations and seminars on the 10th anniversary of China's accession to the WTO have started in China. Miao Jianmin, Chairman of China Life Asset Management Co. Ltd., thought what is more important is not to conclude the past achievements, but to consider how to develop in the future.

Even after bringing its laws and regulations in line with WTO guidelines, many policies are still not being properly implemented, said Miao. Moreover, China needs to take special steps to prevent risks while learning from past crises—the 1997 Asian financial crisis and the 2008 global financial crisis—as it continues to open up.

Miao said China's financial industry has developed quickly, with expansion of the virtual economy developing just as fast. Now, China needs to figure out how to deal with relations between the real economy and the virtual economy. There have been lessons in this regard by other countries. For example, in the European Union, the virtual economy expanded and deviated from the development of the real economy, causing the problems now facing the EU.

Zhang of the NDRC's Academy of Macroeconomic Research said in the future China should be more active in participating in the Doha round of negotiations. It should also have a hand in reforming international trade, financial and monetary systems and providing more public products and services to the world.

Zhang said China's 12th Five-Year Plan (2011-15) proposes a shift of focus in opening up from exports and foreign capital introduction to imports and exports, as well as a parallel progress in attracting foreign investment and making overseas investment. China's foreign trade will be strategically transferred to balanced development. On the one hand, the country will expand exports, and on the other it will strive to become a provider of final consumption and a final market while actively participating in international competition, exchanges and divisions of labor.

Some labor-intensive industries in China should be transferred to other countries and regions, such as those in Southeast Asia and South Asia. "The labor and land costs in China are rising fast, so transfer is not necessarily a bad thing, because it can help the development of other countries and let them share the benefits of globalization," said Zhang Wenkui, Deputy Director of the Enterprise Research Institute of the Development Research Center of the State Council.

China will continue to open up in the years to come, no matter what challenges it faces. At a MOFCOM press conference held on November 21, E Defeng, Deputy Director of the Department of WTO Affairs at MOFCOM, said the ministry is formulating strategic guiding documents on opening up.

Only unswervingly expanding opening up can China maintain sustainable economic development, Yu said.

"China's accession to the WTO, including the decade after that, is not the end point of its opening up, but a new starting point," Yu said.

According to Yu, in the future China will continue to promote opening up in its coastal, inland and frontier areas. It will actively expand opening up of financial, logistics and healthcare services in the consumer market, and establish an all-round, scientific method of opening up. It will more actively participate in economic globalization and regional integration, and in implementing a strategy of opening up for mutual benefit.

China's Economic Development as a WTO Member

- GDP: Up from 11 trillion yuan ($1.73 trillion) in 2001 to 40 trillion yuan ($6.29 trillion) in 2010, with average annual growth of more than 10 percent.

- Foreign trade: Exports increased 5.9 fold and imports increased 5.7 fold. The total volume of exports and imports ranked second in the world in 2010 from the sixth in 2001, being the world's second largest importing nation and the biggest exporting nation.

- Foreign investment: China has attracted $759.5 billion in aggregate foreign direct investment, ranking first among developing countries.

- Overseas investment: China made $68.8 billion in overseas investment in 2010, ranking fifth in the world, with average annual growth of more than 40 percent.

- Tariffs: China's tariff level dropped from 15.3 percent to 9.8 percent, and 100 service sectors are open to foreign investors.

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