China’s Foreign Trade Needs Adjustments

China’s foreign trade keeps an internal growth momentum， and it is expected to lead the world trade into a new round of development if effective development strategies and promotion policies are implemented.

The import and export data of September 2012 issued by General Administration of Customs show three changes when compared with last month: the first is that the increase degree of import and export is larger than last month， with the growth rate reaching 6.3%， up by 6.1 percentage points; the second is that the export volume hit a historical high， with export increasing by 9.9%， up by 7.2 percentage points from last month; the third is that the import is on the rebound， increasing by 2.4% in September. While last month the import decreased by 2.6%.

There are two major factors contributing to the notable improvement of foreign trade: the first is the time point. Normally the September is when the number of trade orders is the largest， and the market is prepared for the Christmas， which increased the import and export volume; the second factor is the policy expectation. The quantitative easing financial policy of the U.S. will push up the raw material price and consumption demands in the short run， which also invigorates the foreign trade.

China’s foreign trade growth still robust

It is hard to tell whether China’s foreign trade has experienced trend changes or rebounds， but in general， China’s foreign trade has three highlights in the first three quarters: the general trade grows faster than processing trade; trade with emerging markets performs better than that with traditional markets; the middle and west regions and private companies become new driving engines of the trade growth. These three highlights constitute the general development of China’s foreign trade in the coming years.

General Trade grows faster than processing trade. Since the outbreak of financial crisis， China’s general trade has grown faster than processing trade， and the general trade is grabbing an increasingly large share of China’s import and export. During the previous three quarters of the year 2012， the value of China’s foreign trade reached 2842.47 billion USD， up by 6.3% on a year-onyear basis. The value of general trade hit 1498.97 billion USD， up by 5.9% and 3.7 percentage higher than processing trade. As of September 2012， the general trade has constituted 57.1% of China’s trade volume， 4.2% higher than last year. The share of processing trade has decreased to 34.5%， 1.4% lower than last year.

China is in the process of industrialization during which the improvement of self innovation capacity is key to economic development at this stage. General trade reflects the export and innovation capacity of a country’s selfowned brand products. The expansion of general trade not only meets the needs of economic development， but also boosts the confidence of China’s trade. The noteworthy is that China’s general trade is inversely proportional to the processing trade， and manufacturing industry is still the leading engine of China’s economy. Although China’s processing trade is having fewer advantages due to the rising costs and other factors， its development is key to the consolidation of the “global manufacturing hub” position of China， and will increase the level of China’s industrialization development. The general trade and processing trade shall constitute the dual engine development model， and the idea to replace processing trade with general trade shall be avoided.

The trade with emerging markets performs better than that with traditional markets. Considering the trade with major trade partners， during the first three quarters， China’s trade with its partners has all increased except the European Union， Japan and India. The trade with U.S. has increased by 9.1% and trade with Canada， Australia and New Zealand has rose by 8.7%， 7.5% and 13.5% respectively. The trade with emerging markets has kept a good momentum， with the trade with ASEAN， Russia and Brazil have increased by 8.1%， 14.2% and 5% respectively. The growth rate of trade with South Africa hit the highest， reaching 37.1%.

The European Union and Japan ranks 1st and fourth respectively in terms of trade with China， the slump of the trade with these two markets has directly affected China’s trade growth since 2012. During the first three quarters this year， China’s import value from the EU and Japan has decreased by 2.7% and 1.8% respectively. Since the trade with EU and Japan constitute 14.5% and 8.8% of China’s total trade volume， the trade gloom of these two markets has dragged down the growth rate of China’s foreign trade by 0.5%. Although the EU and Japan will follow the U.S. on a new round of quantitative easing financial policies， the unresolved risk of European debt crisis， the weak demands of Japan’s economic recession， and also the Sino-Japan conflicts fuelled by the“diaoyu island incident”， which would cool down the Japanese companies’economic investments and trade with China， these factors will combine to make the substantial increase of China’s foreign trade almost impossible.

The middle and west regions and private firms become new trade growth opportunities. Since 2012， China’s foreign trade has on the course of slow development， but the robust growth of the middle and west regions have become one of the highlights that encourage the market. During the first three quarters， the export growth of Chongqing increased by 150%. The export growth of Henan， Sichuan and Jiangxi has increased by 62.8%， 42.8% and 39.1% respectively.

The data from January and August also shows provinces that top the list of trade growth rate， including Tibet(183.1%)， Chongqing (132.9%)， Henan(64.3%)， Guizhou (40.8%)，Sichuan(31.4%)， Anhui (26.5%)， Jiangxi (24.9%) and Yunnan (22.4%).

The vigorousness of private firms has become another highlight of China’s foreign trade growth. In the first three quarters， the trade value contributed by private firms (including collective， private-owned and other companies) reaches 877.97 billion USD， up by 18.8% and 12.6 percent higher than the overall trade. It constitutes 85.4% of the export growth and increases the export by 6.1%; and constitutes 78.6% of the import growth and increases the import by 4.1%.

In the first three quarters， the share of private firms at China’s total foreign trade has increased from 27.6% last year to 30.9%. The massive rise of China’s middle and west regions， and the rapid development of private firms have created new opportunities for China’s foreign trade.

“Three adjustments” and “three breakthroughs” to cope with changes of the international market

These three trends show that China’s foreign trade keeps an internal growth momentum， and it is expected to lead the world trade into a new round of development if effective development strategies and promotion policies are implemented.

Grab the period of strategic opportunities for the development of China’s foreign trade. The PMI issued by the U.S. Supplier Management Association in September poses big increase back to 51.5， ending a three month gloomy condition with PMI lower than 50% line， and indicating a shortterm economic recovery after the U.S. government adopts the third round of financial easing policy. It is estimated that from the end of 2012 to 2013， the external environment of China’s foreign trade will improve， but the stimulus policy does not solve the fundamental structural problems of the economy of the U.S. and other developed countries. The U.S. intention to control the world through financial currency has not changed and the world economy might plunge into another recession after the stimulus policy accomplishes its mission. Therefore the China’s foreign trade that is driven by external demand will face big challenges.

In fact， the adjustment of developed countries could also be considered as our strategic opportunity. The development of China’s foreign trade shall be in line with the market rules， and purely juggling the data should be avoided. We shall formulate the foreign trade development strategy in the long run and pay attention to the internal growth momentum to promote the adjustment and transformation of foreign trade structure.

Keep stable the foreign trade strategy and policy. Since September， the Chinese government has introduced various measures to promote the development of foreign trade. The office of State Council has formally issued “Opinions of the Promotion of Foreign Trade Development”， raising 8 measures; the General Office of Customs issued 16 measures to stabilize the growth of foreign trade; the Ministry of Finance and the National Commission of Development and Reform have co-issued regulations to cancel the commission charge of customs regulation; the General Administration of Supervision， Inspection and Quarantine has announced the exemption of legalized exit and entry inspection and quarantine charge for the 4th quarter. These measures have to some extent stabilized the market confidence.

However， a blitz of making new policies might produce the opposite results， because the companies find it hard to define new investment arrangement when facing unstable policies or expecting new policies. In most cases the policy will have preventive or directional effects and as the world economy is sliding， it is necessary to implement positive measures. But stable and longterm development strategy of foreign trade will give definite signals to companies， which will better help their transformation and business layout.

Make efforts to realize “three adjustments” and“three breakthroughs”: when talking about theory or real facts， China’s foreign trade development shall respect the market rule and make three transformations， namely transformation from government-driven development model to one playing to the strength of the market and government; transformation from the quantity expansion model to one that features the quality effect; transformation from relying on traditional cost advantage to developing comprehensive factor advantage.

We shall make breakthroughs in three aspects: the first is to transform from the assessment on data and quantity to quality and capacity; the second is to make and construct import and export strategy of innovation countries; the third is to development a foreign trade policy system with trade and industry in great coordination.

China’s foreign trade will be shield from all types of changes if these three adjustments and breakthroughs are made. No matter how the international market changes， China’s foreign trade will have a stable and lasting development in the global market with its adaptation to the market demands and social transformation， its concentration on quality and trustworthiness.