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Nation's foreign trade is on track, says economist

(China Daily)
Updated: 2008-07-23 08:32

Editor's note: The latest trade figures show that China's export growth has been slowing down in recent months, thanks to rising costs and shrinking overseas demand. Meanwhile, some exporters are complaining about falling profit margins due to yuan appreciation. Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, gives China Daily reporter Wang Xu his opinion on China's international trade.

Q: What do you think about the overall foreign trade situation in the first half?

A: As a whole, the foreign trade sector is developing on track as we expected. First of all, exports maintained a brisk growth, although slowing down a bit. Meanwhile, the growth of trade surplus has declined, just as we expected. At the same time, there are several key issues, which need to be noted. First, the profit margin of some export enterprises have been falling due to the rising yuan and labor cost. Meanwhile, weakening US market has been a serious test for some export companies.

In the second half of the year, we need to keep an eye on the difficulties faced by exporting enterprises. And the government could be prepared to offer a helping hand.

Q: Which measures could the government take to help exporters? Do you think it's necessary to slow down the appreciation of the renminbi?

A: One solution is to increase the refund rate of export taxes. As for renminbi appreciation, the government could interfere in the foreign exchange market in a short spell. The central bank could use renminbi to buy US dollars, but such a move would increase liquidity at home, which is contradictory to the aim of its macro-control measures.

Q: There are concerns that the current export slowdown will put many export-oriented enterprises out of business. Do you think so?

A: Indeed, many export-oriented enterprises are now suffering from shrinking orders and have problems getting loans. But we should not overestimate the difficulties they are facing.

For some sectors, such as toys, Chinese enterprises are already accounting for 80-90 percent of the global market, thanks to their cost advantage. There was little growth space in these industries even before the subprime crisis and the macro-control measures. We actually had expected such a slowdown in the past years. Moreover, some slowdown is due to the government's efforts to curb the exports of highly polluting and energy-intensive sectors. So if we carve out these factors, the real impact of the weakening overseas demand is smaller. So is the impact from the tightening measures.

Related readings:  Outlook of China foreign trade positive

Q: In the long run, what other measures do you think the government could take to boost the development of export-oriented enterprises?

A: In the long run, these enterprises need to move up the value chain. Their dependence on cheap labor is unsustainable. To survive, they need to establish their own brands, marketing and R&D capacity and even distribution networks, especially in overseas market.

One shortcut to achieve these goals is acquiring established companies. And a strong renminbi is making it easier. The government could offer convenience and incentives for local companies for their overseas acquisitions.

As for export-oriented enterprises, they could also look for overseas partners, especially private equity funds, for acquisitions. After the subprime crisis, capital for investment opportunities is abundant. Some are also looking at China for potential deals. The latest case is the failed trial by Huawei and Bain Capital to buy US-based 3Com.

Q: Do you think it's necessary to relax the tightening measures that have been adopted since last year?

A: If the macroeconomic situation worsens, there might be a need. But even if such a move comes, the government should continue its policy to encourage the domestic industry to upgrade and move up from the low-end area.

Q: You just mentioned the government might increase export tax refunds. Which industries are most likely to benefit?

A: Textile and clothing. These two industries create job opportunities for more than 15 million people. As for energy-intensive and highly polluting sectors such as chemical and coke, there is little possibility.

Q: Due to rising cost, many plants and factories are moving from the coastal areas to the inland. And it seems that even more of them are moving to other Asian countries such as Vietnam and the Philippines. Do you think China is losing its competitive edge in manufacturing?

A: China is now the fourth largest economy in the world. Such scale of economy is an important advantage: It has stronger capacity on the face of external economic turmoil. Now we are seeing economic turmoil in Vietnam and some other neighboring nations, while China's economy is relatively stable, although we are also dealing with rising fuel and food prices.