OPINION

Worries of the Trade Champion

The General Administration of Customs recently announced that China outstripped the United States in international cargo trade last year. For some, this implies that China has risen to become the largest trading country on the globe.

It is arguable that China's great performance in trade comes at the expense of economic welfare and the environment. Moreover, since heavy regulation has severely undermined the Chinese capacity for self-governance and pricing efficiency, it's hardly possible for China to attain a predominant position in international trade in the short run. Beyond that, China is still lagging far behind the developed world in the trade of high value-added commodities, services and intellectual property.

To secure its future dominance, China still has to overcome a cluster of challenges. Generally speaking, net exports is equivalent to exports of adjusted net savings, which measure the true rate of saving in an economy after considering investment in human capital, depletion of natural resources and environmental damage caused by pollution. The aging of China's population has caused the scale of adjusted net savings to shrink, leaving domestic demand not fully met. Therefore, China should allow a shift from trade surplus to current account deficit, with increasing dependence on imports of key resources. It should also absorb large amounts of foreign funds through capital and financial accounts to offset the shortage of adjusted net savings.

However, this may not work. For one thing, the ecological system has been too fragile to support the extensive export model adopted in the past. Against the context of an aging population, the export of adjusted net savings indicates inflation as well as asset bubble expansion in China.

For another, international trade is edging away from commodities to services and intellectual property, which happen to be China's weaknesses. Progress in 3D printing, digital technology and mobile storage are reshaping the international economic and social ecology in terms of manufacturing and transaction.

As a result, information asymmetry will be improved, market transaction cost will be lowered, production and consumption will connect to one another more closely, and customized products are gaining popularity. All these testify to the fact that standardized mass production can no longer adapt to consumer demands in the days to come.

Lastly, free trade agreements that focus more on service and intellectual property, like the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership, will speed up reforms on the international trade system, and then erode China's advantages in cargo trade.

New free trade agreements as well as surging labor costs and housing prices in China may force some trade companies to move out of the country to regions with lower costs. Meanwhile, due to the adoption of new technology and changes in market demands, China's exports can barely benefit from the economic recovery in Europe and the United States.

In short, priority should be given to eradicating factors that may cramp China's economic growth by deleveraging and carrying out reforms, rather than blindly pursuing grandiose figures.

This is an edited excerpt by Liu Xiaozhong, a financial commentator, published in the 21st Century Business Herald

THE MARKETS

Fast Growing Yu'E Bao

Yu'E Bao (Leftover Treasure), an Alibaba personal finance product launched in June 2013, has 49 million users with aggregate deposits of 250 billion yuan ($41 billion), giving young people an option to channel their driblet savings into high-interest funds.

The number of users has soared in the first half January and deposits are up by 64.7 billion yuan, 35 percent, compared with the end of 2013. Six million new users have signed up, figures from Alipay and Tianhong Fund showed.

Yu'E Bao is an online fund established by Alipay, China's largest third-party payment platform and a subsidiary of Alibaba, together with the private Tianhong Fund.

Thanks to its cooperation with Alipay in Yu'E Bao, Tianhong Asset Management Co. Ltd. has overtaken China Asset Management Co. Ltd. to become China's largest fund company in terms of assets, according to industry figures.

UnionPay New Record

The total value of transactions via UnionPay bankcards totaled 32.3 trillion yuan ($5.3 trillion) in 2013, up 48 percent on 2012, according to data released by China UnionPay, the nation's top bankcard association.

The association said the transaction surge could be mainly attributed to increasing daily consumer spending in department stores, supermarkets and gas stations.

The number of businesses, POS (point of sales) machines as well as ATMs in China that accept UnionPay cards increased 58 percent, 49 percent and 24 percent, respectively, last year.

As of the end of 2013, UnionPay's services had covered 142 countries and regions, with over 11 million businesses and 1.1 million ATMs accepting UnionPay overseas.

Numbers

21.99 mln

Automobile sales in 2013, up 13.87 percent

7.23 mln

Sales of domestic brand cars in 2013, up 11.4 percent

17,642

Sales of new energy automobiles in 2013, up 37.9 percent

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