China has finally joined the world's top 10 trading countries and regions. According to the 1997 world trade list issued by the World Trade Organization (WTO) in January, China jumped ahead of Belgium & Luxembourg, with a total import and export value of US$325 billion (see table). Prior to this, it had held 11th place for five straight years.
Imports and Exports Further Developed
In 1997, exports reached US$182.7 billion, ranking 10th, and imports totaled US$142.3 billion, 12th in the world. The US$325 billion total was 12.1 percent more than the previous year's figure, 5 percentage points higher than the global growth rate. This was the 14th straight year of foreign trade growth.
Exports grew 20.9 percent, the fourth time the growth rate has exceeded 20 percent following 1987, 1994 and 1995.
The US$40 billion favorable trade balance was the second highest in the world after Japan, helping the foreign exchange reserves reach nearly US$140 billion.
All these achievements can mainly be attributed to the following reasons.
Firstly, general exports hit US$77.97 billion, a rise of 24 percent over 1996, a year witnessing a 12-percent decline.
In 1997, the ratio of general exports to the overall value was one percentage point higher than the 41.6-percent figure of the previous year. Because general trade is closely related with domestic industries, especially state-owned enterprises, it plays a significant role in national economic development. The decline of exports in 1996 resulted in a decrease of nearly 100 billion yuan in demand for goods from domestic industrial sectors. Some enterprises reduced or
even suspended production, while others turned to, and thus brought greater pressure to bear on, the saturated domestic markets. This shows the importance of export growth in the overall economic situation.
Secondly, processing trade accounts for half the foreign trade. In 1997, total processing trade was valued at over US$169.8 billion, accounting for 52.2 percent of the national total, a rise of 1.6 percentage points. Exports worth US$99.6 billion accounted for 54.5 percent of the national total. The processing trade has adopted a method known as "three supplies and one compensation" (supplied materials, samples and parts and compensation trade). It uses few domestic funds and consumes less valuable domestic resources. At present, the processing trade mainly refers to labor-intensive industries, which can provide large employment opportunities and ease the pressure of increasing unemployment.
Thirdly, state foreign trade enterprises and foreign-funded enterprises compete almost equally in the international market. In 1997, state foreign trade enterprises handled US$163.66 billion worth of imports and exports, or 50.4 percent of the total trade volume. Their exports were worth US$102.69 billion, or 56.2 percent of the total. Foreign-funded enterprises handled US$152.62 billion worth of trade, making up 46.9 percent of the total. Exports were worth US$74.9 billion, accounting for 41 percent of the overall figure. Hence, foreign-funded enterprises have become an important component of China's foreign trade.
Fourthly, new progress has been made in diversification of foreign trade markets. In 1997, exports to Latin America, Africa and Oceania grew by 47.7 percent, 24.9 percent and 22.1 percent respectively. At the same time, China maintained solid export growth in its traditional Asian, European and North American markets.
Of the three key factors of investment, consumption and exports that promote economic development, the latter in 1997 became vital to the country's ability to maintain rapid growth.
Growth in Absorbing Foreign Investment
Economic development and market opening have constantly attracted foreign investors.
At the National Foreign Economic and Trade Working Conference held in February, Wu Yi, minister of foreign trade and economic cooperation, reported that last year saw 21,028 newly approved foreign-funded enterprises, with US$51.8 billion contracted foreign capital. The two figures were respectively 14.37 percent and 29.36 percent down from the previous year. Some US$45.26 billion was actually used, an increase of 8.47 percent.
Wu summarized some features in absorbing foreign capital last year.
Actual use of foreign capital was a record, while contracted capital dropped by a large margin.
The number of solely foreign-owned enterprises for the first time exceeded the number of Sino-for-eign joint ventures.
The proportion of newly-approved foreign-invested enterprises in central and western regions rose slightly.
Hong Kong remains an important source of overseas capital.
The settlement of exchange in the import and export of foreign-funded enterprises for the first time exceeded the settlement of exchange of invested capital.
By the end of last year, China had approved more than 304,000 foreign-invested enterprises. Contracted foreign capital amounted to US$521.16 billion, of which US$221.87 billion had actually been used. There have been tangible results in getting loans from foreign governments, selecting loan projects and recouping loans.
Last year, China signed 14 framework agreements for preferential loans with 14 countries, with the interest deducted by the respective governments. Negotiated capital totaled 1.6 billion yuan. By the end of last year, China had signed 38 similar agreements, with total value standing at 4.29 billion yuan.
Goals for 1998 Foreign Trade
The State Council has proposed raising the gross domestic product growth rate by 8 percent or higher, and total volume of import and export to US$345 billion.
At the same time, there will be further expansion in the use of foreign capital, conducting foreign contract projects and labor service cooperation, developing various forms of economic and technological cooperation and expanding foreign investment.
Boosting Exports and Increasing Imports
Minister Wu Yi said that on the export side, expanding exports on the premise of increasing returns would be stressed.
"We must devote major efforts to developing exports and maintaining their stable growth. At the same time, there should be an appropriate increase of imports to gradually reduce the favorable balance of trade."
Wu proposed some policies and measures to actively develop export markets:
Optimizing the export commodity structure. Some policies will be formulated to encourage and promote commodity exports which contain advanced technologies and high added value.
Expanding exports by various ways. The trade of general commodities will remain the main form of exports, while effort will be made to tap the processing trade.
Formulating measures to encourage exports yielding quick returns, improving the export tax-refund system by simplifying procedures and accelerating the pace. Efforts will be made to encourage all foreign enterprises, especially those in industrial sectors, to expand exports.
Promoting exports by combining them with foreign aid, economic and technological cooperation and investment.
Continuing to expand traditional markets in the United States. Japan and the European Union (EU), while energetically opening up new markets. The economic scale of the United States, Japan and the EU is very large, as is their market capacity. Though bilateral trade has reached a considerable scale, there is still potential to be tapped, while exploring new markets in African and Latin American countries and the Commonwealth of Independent States.
In talking about ways to increase imports, Wu said readjustments would be made in the structures of domestic industries along with the readjustment of the export commodity mix and technological progress. But an adequate increase of imports did not mean blind imports. While enhancing imports, China would firmly crack down on acts of false imports, the evasion of foreign exchange and other fraudulent practices, the minister said.
Eliminating Influence of the Asian Financial Crisis
The 1997 international economic environment provided China with a development opportunity in its foreign trade. At the beginning of the year, exports were expanding rapidly. However, the Asian financial crisis resulted in a slowing-down of the growth rate in the second half of the year.
"The depreciation of currency in Southeast Asian countries challenges China's export competitiveness. However, there is no need for us to stimulate exports by devaluating the Renminbi (RMB)," said Li Lanqing, vice-premier of the State Council, speaking at the annual meeting of World Economic Forum.
Over the past 20 years, China's export commodity structure has been constantly optimized with the development of foreign trade. In the mid-1980s, the country accomplished the task to shift from primary products to industrial manufactured goods as the predominant export source. In 1997, export of industrial manufactures accounted for 86.9 percent of total shipments. However, light and textile products made up over 50 percent of China's total. But such a situation of low price international competition mainly relying on low labor costs could not last long, even without the financial crisis. This is because the existing product mix not only faces strong competition from developing countries, but is also influenced by international trade protectionism, anti-dumping threat and restriction of quota. At the same time, the world market has become saturated with little room for growth.
The devaluations, while putting pressure on China's exports, also provide excellent opportunities for Chinese enterprises. The rising value of the RMB, for example, enables them to buy more shares with the same amount of investment in the devaluing countries. Meanwhile, the economic crisis will compel affected countries to grant more preferential treatment to. foreign investors. Moreover, as China is in the period of industrial restructuring, there is much surplus industrial production capacity. So, it is the right time to invest in a promising overseas market.
(No. 13, 1998)