Despite boosting domestic demand, China should not ignore high-end exports and investment opportunities

As many of the policies and measures China adopted to counter the effects of the global financial crisis and boost domestic demand have lost their efficacy and its fixed asset investment has been on an accelerated decline, some domestic enterprises, especially those that have experienced a larger-scale capacity expansion in recent years, are facing growing pressures. This is especially true of the manufacturing sector, and for electrical appliance and railway equipment manufacturers in particular.

Since the 1990s, China has been the largest producer as well as the largest exporter of household appliances. Although the global financial crisis negatively affected the sector, the adoption of a string of stimulus packages at home bolstered their development and the enormous domestic market has served as a haven at a time when external demand has been deteriorating. As a result their investment and capacity have achieved tangible growth.

However, the slowdown in China's economic growth together with the government's steps to phase out preferential measures mean the sector now faces increasing market contraction.

This is the same situation the country's railway equipment manufacturers are facing. The leapfrog development of China's high-speed railways in recent years was a boon to domestic railway equipment manufacturers. However, the fatal accident near Wenzhou in Zhejiang province in July 2011, interrupted the exceptionally fast growth of China's high-speed railway network, and domestic high-speed railway investment has virtually come to a halt.

Statistics show that China's railway investment declined by 252 billion yuan ($40 billion) in 2011 from 762 billion yuan in 2010, a decline of 30 percent. This year's railway investment is expected to decline even further to 40 billion yuan. The high-speed railway sector, which was China's self-developed innovative and strategic sector, will suffer a serious setback if it fails to expand into overseas markets.

Foreign trade plays a very important role in China's economic and social development. According to a report published by the National Bureau of Statistics in late February, the country's economic development was 48.9 percent dependent on exports and imports in 2011, of which 25.5 percent was exports. Exports provide employment for about 100 million workers.

Undoubtedly, to promote the transformation of the country's economic growth mode, we should depend more on domestic demand. But that does not mean we can afford to ignore or abandon the export market as a key driver of economic growth. The high proportion of "Made in China" goods in global production highlights how important it is for China to promote a steady expansion of its exports.

With less than one-tenth of the world's children, China produces more than 70 percent of the world's toys. Such a large output is unlikely to be consumed by the domestic market alone. It is also particularly unwise for China to concede its hard-won global market share to other competitors. China's goal to balance its international payments should be achieved by increasing its imports and outward direct investment, instead of decreasing its exports.

The country's household appliance industry has already established its advantage and will remain the world's largest source of exports for a long time. The country's railway sector, despite suffering a severe blow after the Wenzhou crash, is also setting a successful example in promoting technological exports. China's rail transport equipment has a large market share in some countries, and has established a good reputation. Despite a drastic decrease in domestic railway investment in 2011, exports of the country's railway equipment rose by 30 billion yuan in 2011 from the previous year.

At a time when China is seeking to boost its long-sluggish domestic demand, practical measures should be taken to promote Chinese railway equipment overseas as a way to promote the development of the country's struggling manufacturing sector and project contracting.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

(China Daily 04/27/2012 page8)