Real benefits of high trade volume remain elusive

As the General Administration of Customs reported on May 10, China's trade volume grew by 6 percent year-on-year in the first four months of this year, far below the 10 percent figure expected by the Ministry of Commerce. As China's trade taps the breaks, many have become concerned about the state of the nation's economy and its future growth prospects.

However, I would argue that what really deserves the nation's attention right now is the lack of benefits China's already-massive trade portfolio has brought to the country's manufacturers. China currently has the second highest trade volume in the world, next to the US; yet, in many ways, it little resembles a leading trade giant.

In most cases, a higher trade volume should strengthen a country's economy, or at least its manufacturing sector, as it brings home more in returns through the sale of its labor and commands lower prices for the importation of raw materials for production.

But, the truth is Chinese firms and workers have not been the main beneficiaries of the country's remarkable achievements in foreign trade, given its low labor costs and limited voice in the pricing of commodities.

Foreign enterprises have been flocking to China since the country joined the World Trade Organization in 2001 in order to capitalize on the country's large, low-cost labor force. Yet, according to statistics from the China Year Book in 2009, the salaries domestic manufacturers offered to their workers have grown by 9.9 percent between 1998 and 2008. During the same period, domestic manufacturers have seen their profits grow by 30.5 percent.

Although the media might claim that the days of cheap Chinese labor are at an end, the majority of domestic manufacturers are disinclined to push up salaries for their workers as wage increases would cut into their razor-thin margins.

On the import side, China still has little sway over the pricing of raw materials even though it is the world's largest consumer of several key commodities. China accounts for 68 percent of global iron ore demand, 67 percent of rare earth demand and 48 percent of coal demand.

But without greater clout in the market, China has had to spend more on importing commodities in recent years, which has further pushed up production costs for local manufacturers.

Simply put, if China keeps labor costs low and loses its voice in the pricing of commodities, domestic manufacturers can hardly benefit from its mammoth trade volume, no matter how quickly the country's trade grows.