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Print Edition> Business
UPDATED: September 12, 2014 NO. 38 SEPTEMBER 18, 2014
Market Watch No. 38, 2014


Expanded Trade Surplus Reflects Sagging Domestic Demand

According to data published by the General Administration of Customs on September 8, China's exports and imports in August totaled $367 billion, increasing by 4 percent year on year. Exports registered $208.5 billion, increasing by 9.4 percent year on year, while by contrast, imports amounted to $158.6 billion, decreasing by 2.4 percent year on year. As a result, China's trade surplus has been continually expanding. The trade surplus in August reached $49.8 billion, expanding by 77.8 percent and trade surplus of the first eight months was $200.5 billion, increasing by 30.3 percent. The vastly expanded trade surplus in August reflects that China's trade imbalance is worsening.

It needs to be noted that the current trade imbalance is of a different nature to those in the past. The trade surpluses experienced in the last 10 years or so were mainly attributed to the country's export-oriented economic policy. Under that model, the growth rate of exports naturally far exceeded that of imports, resulting in a huge trade surplus and the current $4-trillion foreign exchange reserves. However, the expanded trade surplus in August came about at a time when export growth has fallen to a single-digit rate, indicating serious systemic problems.

The growth rate of exports in August was only 4 percent, showing that external demand has not fully recovered or is taking the first tentative steps toward recovery. Sino-U.S trade in August increased by 4.4 percent as the growth speed of the U.S. economy exceeded expectations. Real GDP of the United States increased 4.2 percent in the second quarter, registering the highest growth rate since the third quarter of last year. Although economic growth in Europe has been sluggish, Sino-European trade in August increased by 9.9 percent, the highest growth rate among China's trade with developed economies. However, such an increase in exports has had only a limited effect on boosting China's economy. Other economies, especially emerging ones, have industrial structures homogeneous with that of China, and some even directly compete with us in manufacturing; therefore they can do little to drive up our exports.

However, it would be premature to be overly pessimistic about China's export status. Encouragingly, the U.S. economy is increasing at a speed that has surpassed the predicted rates and the European Central Bank is further easing its monetary policy to stimulate economic recovery, with both possessing potential to boost China's exports. Moreover, China is expanding its reforms by rolling out a series of measures to promote exports and stabilize growth, and export companies are accelerating transformation and upgrading. The fact that export growth in August is 5.6 percentage points higher than that of the first eight months in itself shows that China's exports are picking up momentum.

The most worrisome indicator is the sluggish import growth. The slide in imports reflects severely insufficient domestic demand and a high level of attention should be paid to this. Because the exchange rate is stable and the price of international commodities is at a low level, the only remaining possible reason for weak import growth is sagging domestic demand. Not only does this affect imports but will also have an impact on the macro economy, causing difficulties in tackling downward pressures and in stabilizing growth.

Without a stable recovery of domestic demand, the country will face multiple obstacles to easing downward pressures on the economy. Therefore, it should continue to delegate administrative approvals to lower levels of governments and activate private capital while stimulating consumption. In the long run, the country should substantially increase people's income, create more jobs, and improve social security. In the short term, tax burdens for citizens and small, medium- and micro-sized companies should be lightened, the exemption threshold for personal income tax should be lifted and social insurance fees paid by companies and employees should be reduced, while the proportion shouldered by the government ought to be increased. Small, medium- and micro-sized companies can host a large number of employees. Spurring their development will create more jobs and increase people's income.

In short, the expansion of trade surplus in August and the decline in imports reflect a deep-seated problem in China's economy—a serious lack of domestic demand. If not promptly and thoroughly addressed and kept in check, this problem will directly affect the stabilization of the country's economic growth.

This is an edited excerpt from an article by Yu Fenghui, a financial commentator, published in National Business Daily



The value of the Chinese renminbi, the yuan, against the U.S. dollar in its central parity on September 10, marking the currency's highest point against the dollar since March 19


Growth of new-energy vehicles produced in China in the first eight months of this year

114 mln yuan

The amount of money three Chinese cement companies—Jilin Yatai Cement Sales Co., North Cement Co. and Jidong Cement Jilin Co.—have been fined for organizing a price monopoly

650 mln yuan

Money earmarked by the Chinese Government for the prevention of plant disease and elimination of pests

$530 mln

Total value of deals signed at the Malaysia-China Business Conference, held during the 18th China International Fair for Investment and Trade, from September 8-11


The number of mergers and acquisitions (M&As) in the Chinese market in August


"The threat of a world economic downturn is minimal, as Europe and the United States have entered a period of stable and strong economic recovery. In the meantime, emerging industrial economies are introducing critical structural reforms to boost new growth, which offers good opportunities."

Tong Jiadong, an economics professor and Vice President of Tianjin-based Nankai University

Email us at: yushujun@bjreview.com

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