Upgrading the engine of world trade

The latest release of the Ministry of Commerce recorded that in 2004 China contributed 12 percent to the growth of the global goods trade. That is 0.3 percentage points higher than the previous year and makes China the engine of the world trade.

China's foreign trade topped 1 trillion USD for the first 11 months of 2004, achieving a year-on-year surge of 36.5 percent, and is expected to reach 1.1 trillion USD for the whole year. with this the country will hopefully grow to be the third largest trading nation in the world.

Specifically, value of deals with the North America is expected to post 167 billion USD, 190 billion USD with Europe and 600 billion USD with Asia. Actually one-fifth plus of Asia's imports for the 11 months of last year was made by China whose orders there was worth 334.6 billion yuan, marking a stark increase of 37 percent.

Statistics of the World Trade Organization shows that it takes China merely 16 years to have its imports and exports jumped to 1 trillion USD from 100 billion USD while it takes US and Germany 20 and 26 years respectively.

China is a generous buyer on the world market. More than 90 percent of planes flying in the country are provided by Airbus and Boeing. China is also the second largest oil importer in the world.

Export is playing an increasingly bigger role in the country's national economy. More than 30 percent of the country's GDP in 2004 is generated by export which pushes the economy upward by about 2 percentage points.

18 percent of the total tax revenue is collected from the duties on imports and exports. More than one-fifth of the total tax revenue comes from enterprises engaged in foreign trade. 80 million employees are directly involved in foreign trade business.

Both foreign sellers and Chinese consumers believe China's foreign trade will continue to gather momentum in 2005 when the country opens its door wider with lower than ever tariffs. As of January 1 of the new year China reduces its general tariff to 9.9 percent from 10.4 percent. More than 900 items are included in the sweeping tax decrease campaign.

Duties on imported autos are lowered to 30 percent and auto parts to 13 percent. Digital cameras and components, furniture, toys, game machines and videocams for private use enjoy zero tariff. Cosmetics for lips and eyes and powder pay 10 percent taxes. The average duties on wine and tequila is cut down to 10 percent to 30 percent with the most remarkable slash of 36.7 percent.

Many Chinese consumers are waiting to take the advantage of cheaper than ever imported products. Those for the high-market, in particular, will save much money for consumers. Buyers of digital cameras priced at tens of thousands yuan, for example, will likely pay thousands yuan less than before as costs for these products will be 15 percent down.

Import quotas have become history since January 1, 2005 when China lifted its quotas and licensing system for auto imports. Now imported automobiles share merely less than 4 percent fo the domestic auto market with foreign sedans¡¯ slice less than 6 percent. But a surge is expectable and foreign brands will even possibly dominate the market of luxurious sedans and SUV models.

Domestic auto makers have felt the chill. Price wars have been launched to vie for customers who are holding a wait-and-see attitude for a further slash of prices and cheaper foreign cars. But it has not dampen the enthusiasm of new comers into the industry. Three motor cycle giants based in Chongqing have all declared a foray into the business.

The auto industry is not the only one which has to face tougher days ahead. China will remove quotas of all industrial products in 2005. A fierce competition will break out in the country¡¯s manufacturing sector.

That makes the situation even more challenging for Chinese manufacturers which experienced mounting dumping charges in 2004. Although 36 countries have recognized China's full market economy status, its major trade partners, including EU and US, have not. This means that Chinese products have to be revalued to make presence on these markets.

Amid all of this, it seems that no sector has swirled as much attention as textiles. The 40-year old quotas system came to its end on January 1, 2005, marking the advent of a new era of the global textiles trade.

As a WTO member, China, together with other labor rich economies like India, is naturally entitled to reap the benefits of this trade liberation. Indian Textile Minister Vaghela is confident on his ambition that textile shipment from his country would rise to 30 billion USD in 2006 from 13 billion in 2004. EU and US also predicted that in the future China would supply two-thirds of the global textiles. By 2010, they said, 80 percent of US textile and clothes imports would be from China.

However, the reality does not seem as rosy as the vision. Trade protectionism against Chinese textiles and the weak brand building by Chinese producers add to uncertainties on the world market. Some even worry that textiles would be the biggest reason for trade disputes between China and its trade partners.

The European Commission deprived China of its GSP (generalized schemes of preferences) treatment and threatened anti-dumping and anti-subsidies measures against Chinese textiles when deemed "necessary".

US textiles and apparels producers petitioned to the Bush administration for new restrictions on imports from china. An agreement between US and Egypt has given Egypian textiles a free access to US market to prevent the dominance of Chinese textiles. A bumpy road is stretching ahead for the trade between China and US which is armed with anti-dumping sticks and the trade safeguard measures defined in the Sino-US WTO entry agreement and plagued with trade deficit and unemployment.

Even developing countries ask for a three-year extension of textile quotas. Some have consolidated their blockage against textile imports from china. At the end of December last year Turkey decided to restrict imports of 42 kinds of Chinese textile products.

Non-tariff restrains will be set following the removal of quotas, such as anti-dumping and anti-subsidies measure, labor standards, environment standards and customs procedures. EU's so-called green barriers are a typical example.

China is taking positive steps to face the music. It has realized that neither low prices nor dominance guarantees long-term victory on the market. On the last day of 2004, China announced a surprise action, an export tax on its textile products.

Chinese textile producers are repeatedly urged to upgrade their lines and build their competitiveness on technical innovation rather than on lower prices.

This suggestion is valuable for all Chinese producers.

By People's Daily Online