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UPDATED: January 14, 2011 NO. 3 JANUARY 20, 2011
Inside the Growth Engine
China's foreign trade is getting back on the fast track of growth, though uncertainties still hang over its prospects

A much lower comparison basis with 2009 was also a contributor to 2010's strong growth rates. After scoring record high trade figures in 2008 before the crisis, China's foreign trade decreased through much of 2009.

More balanced

China's foreign trade is, in general, heading toward a balanced structure, said the GAC.

Besides the 6.4 percent decline of the trade surplus last year, its proportion in the total trade volume also decreased. The trade surplus, totaling $183.1 billion, accounted for 6.2 percent of all trade volume, down from 8.9 percent in 2009 and 11.6 percent in 2008, said Zheng Yuesheng, Director of Statistics Department of the GAC. This also bore out MOFCOM spokesman Yao Jian's estimate last November. Given the slowdown of exports and expansion of imports, China's trade surplus will generally decline in 2010, Yao said.

Imports grew faster than exports throughout last year. In March, China experienced a monthly trade deficit ($7.24 billion) for the first time since April 2004. The first six months of 2010 ended with imports growing (52.7 percent) faster than exports (35.2 percent), resulting in a 42.5-percent drop in surplus. Last October, China's exports grew by 22.9 percent year on year, 2.2 percentage points lower than growth in September, marking the fifth consecutive month of slowdowns in exports. In contrast, import growth accelerated. At the end of 2010, imports hit record highs in November and December, reaching $130.43 billion and $141.07 billion, respectively. Although exports also hit record highs in that time, imports still displayed faster growth than exports.

Industrial upgrading and transfer in the export sector had effects. General trade accounted for more than half of the total, surpassing the trade volume of enterprises dealing with product processing, which used to be a major contributor to exports. Meanwhile, nearly 60 percent of exported products last year were hi-tech. Exports of mechanical and electronic products grew 30 percent to reach $933.43 billion.

While the east coastal area was still China's export powerhouse, central and western regions' trade volume grew 44.4 percent, 10 percentage points higher than the national average.

Tibet Autonomous Region, and Yunnan, Jiangxi and Gansu provinces' volumes increased110 percent, 66.1 percent, 68 percent and 89.6 percent, respectively.

The country has offered a series of preferential policies to support the transfer of industrial zones from coastal areas to China's inland, said a report of Shanghai Securities. This transfer has also been an engine propelling trade.

In addition, imports and exports of private enterprises grew 47 percent year on year, also faster than national average, while that of foreign-invested enterprises rose 31.4 percent.

Challenging year

Last year's strong growth augurs well for China's foreign trade this year, but many unpredictable elements exist.

High unemployment in Western countries, rising protectionism and pressure for the yuan's appreciation are also problems that will be prevalent throughout 2011, Zhao said.

The long list of trade disputes between the United States and China lengthened further last December as Washington asked the WTO to examine subsidies to the Chinese wind power sector.

It was reported that the EU launched 10 trade remedy investigation cases against Chinese products in the first 11 months of 2010. The cases involved a total value of $4.74 billion, a five-fold increase over that of 2009.

Rising costs for Chinese exporters seem inevitable, because of labor shortage and growing concerns over the environment and natural resources. Last year, 29 provinces and regions raised minimum wages by an average of about 24 percent, according to official statistics.

Wang Xiaoguang, a research fellow at the Policy Advisory Department of the Chinese Academy of Governance, said he expected foreign trade to steadily expand this year as China's trade surplus continues to shrink.

Li Jian believed China would continue to boost imports this year by cutting import duties, subsidizing interest payments on loans for imports of high-end equipment, and facilitating imports. He estimated China's imports would grow by 10 percent to 20 percent this year.

In addition, last year's soaring imports were also credited to the higher prices of imported commodities. According to GAC data, the prices for imported primary products, such as crude oil and iron ore, surged 37 percent year on year in the first three quarters of 2010. And last year, China paid an extra $26.1 billion due to the iron price increase, accounting for 14 percent of its annual trade surplus, according to Beijing-based Economic Information Daily. As a result of price hikes for major primary products, the shrinking trade surplus is more of a forced-to-accept result as opposed to a voluntary choice.

However, Wang Tao, chief economist with UBS Securities, said the rise in imported commodity prices last year will not persist, and the trade surplus will be back on a growth track and rise above the $200-billion level this year.

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