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| Mr. Fu Ziying's portfolio covers the Department of Finance, the Trade Development Bureau, the Chinese Academy of International Trade and Economic Cooperation, the MOFCOM Training Center, China Enterprises' Association, China International Freight Forwarders Association, the Accounting Society for Foreign Economic Relations and Trade of China, and Statistical Society for Foreign Economic Relations and Trade of China. |
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| China's Foreign Trade and Investment Policies for Promoting the International Balance of Payments |
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| 2006-11-23 11:19 MOFCOM |
Dear comrades and friends
It is my great pleasure to attend the 2007 China Industry Development Report Conference discussing with you on China's foreign trade and investment policies under the new circumstances. Today, I would like to brief you on the information in the following three aspects: first, the developments of China's foreign trade and economic cooperation, second, the current situation of China’s international balance of payments, and third, the future orientation of China’s foreign trade and economic cooperation policies.
First, the general situation of China's foreign trade and economic development
In the past 5 years since acquiring the WTO membership, China has been involved in the economic globalization in a more active way, with the opening up process going more deeply and extensively. New progress has been achieved in foreign trade and international economic cooperation.
1, China's foreign trade keeps a steadily fast growth. From 2001 to 2005, China enjoyed an annual foreign trade growth of 24.6%, with export growing at 25% and import 24%. China became a true big trading nation with its ranking in the world lifted from No. 6 to 3 In 2006, China's foreign trade maintained the momentum of fast growth. The trade volume in the first 3 quarters reached US$1.2726 trillion, up by 24.3% on a year-on-year basis, among which export was US$691.2 billion and import US$581.4 billion, up by 26.5% and 21.7% respectively. It is predicted that the total trade volume in 2006 will amount to US$1.7 trillion, up by 20% or more.
2, The import and export commodity structure is improving. In recent years, China’s export of electromechanical and high-tech products has boasted a higher than average growth rate resulting in their increasing proportion in the total export of the country. In the first 3 quarters of 2006, China’s electromechanical exports accounted for 56.2% of the total export, while the share for high-tech exports was 28.3%. China became one of the biggest sources of IT products in the world. China’s import of short supplied and badly needed energy, raw material, advanced technologies and key equipments also went up rapidly. During the first 3 quarters, China’s import of mineral products was up by 43.3%, and high-tech products was up by 27.9%, 21.6% and 6.2% respectively higher than the national average import growth rate.
3, Foreign investment attraction effort has stepped onto a higher stage. Since China entered the WTO, foreign businesses have been more optimistic about the investment environment in China. China's actual FDI inflow in 2002 exceeded US$50 billion. In 2004 the record of US$60 billion was broken, and in 2005 the figure jumped to US$60.3, accounting for 6.6% of the total global FDI inflow. In the first 3 quarters of 2006, China’s actual FDI inflow was US$42.6 billion and is expected to reach about US$60 billion at the end of the year. Consequently China will be the biggest FDI destination among the developing countries for 14 years in a row.
4, The service industry becomes a new growth point in terms of FDI inflow. While China is honoring its WTO commitments step by step, the liberalization process is quickening up in such service sectors as distribution, banking, and insurance. Furthermore, the rapid expansion of global outsourcing has also stimulated the FDI inflow into China’s service industry. In the first 3 quarters of 2006, FDI inflow in the service industry grew by 9.8% , whose share in the country’s total rose by 2.3 percentage points on a year-on-year basis. In comparison, FDI inflow into the manufacturing industry went down by 9.4%, with the biggest decline happening in such sectors as steel, cement and electrolytic aluminum under the key macro regulation of the state.
5, China's overseas investment is rapidly expanding. With the progressive implementation of the "Going Global" strategy, the Chinese enterprises are found to be more enthusiastic in investing abroad. Consequently China’s overseas direct investment is rapidly expanding. In 2005, the overseas direct investment of Chinese non-financial enterprises amounted to US$12.3 billion, up by 1.2 times compared with the previous year. In the first 3 quarters of 2006, China’s total overseas direct investment got to US$14.1 billion, up by 1.8 times than the high figure of the corresponding period last year. It is expected that the figure for 2006 as a whole will reach US$16 billion.
Second, an objective view on China’s international payment imbalance.
While China’s foreign trade and economic cooperation course is going rapidly, some new problems occur. The international payment imbalance as a result of the rising foreign trade surplus in the recent two years has aroused extensive concerns of people at home and abroad. With regard to the trade balance, China had a trade surplus of US$102 billion in 2005. In the first 3 quarters of 2006, the trade surplus already got to US$109.8 billion, which is expected to reach US$140 billion for the whole year. In terms of the international balance of payments, the surplus for the first 3 quarters was US$240.1 billion, including a current account surplus of US$177.5 billion and a capital and financial account surplus of US$62.6 billion. By the end of September 2006, China’s foreign exchange reserve hit US$987.9 billion. We believe this issue deserves our great attention and efforts in order for a resolution on the one hand, and on the other needs to be rationally defined and objectively analyzed.
1, The current international payment imbalance is a result of economic globalization.
The international industry transfer has brought with it surplus to China. Since the 1990s, the economic globalization has deepened, with more specific international division of labor. The international industries are quickly transferring to China shaping up a global labor division structure with the South East Asia as the parts and components supplier, China as the processing and manufacturing base, and Europe and the US as the core technology R& D center and key market. In 2005, China’s trade surplus with the US was US$114.2 billion, up by 12.2 times compared with 1995. The trade surplus with the EU in 2005 was US$70.1 billion, while in 1995 China had a deficit of US$1.46 billion. Meanwhile, China’s total deficit in trade with Japan, Korean, ASEAN and Taiwan amounted to US$135.9 billion, up by 7.9 times compared with 1995.
The international industry transfer has also led to the continuous inflow of FDI into China. Compared with other countries, China has comprehensive advantages in attracting the international industry transfer and foreign investment. More important is the opening up policy that China unswervingly adopts under which there are more opening regions, more diversified opening up patterns, and wider sectors, which have created a favorable environment for foreign investment.
2, The current international payment imbalance is closely related with China’s development stage.
China is now at the stage of rapid industrialization, which is also a key reason for its trade surplus. Reading the experiences of advanced countries, one can find certain inevitability of trade surplus during the rapid industrialization period. China is exactly going through this stage featuring fast technological advancement and industry upgrading. While its competitiveness in such traditionally strong areas as textile, light industry and home appliances is improving, its competitive edge in some high-tech sectors as information and telecommunication is also sharpening. The constant expansion of the production capacity has not only laid a solid foundation for the sustained fast growth of export, but also played a role to substitute the imports to some extent. Meanwhile, due to various reasons, China is suffering from a relatively low consumers demand and final consumption rate, which also give rise to the trade surplus.
Another important reason for the capital account surplus is China is still at the preliminary stage in overseas investment. China’s Balance Sheet of International Payments says that the capital and financial account surplus is mainly attributable to the small number of Chinese overseas investment, rather than a big FDI inflow number. At present, the Chinese enterprises are generally small in size, which are not strong enough in making large investment abroad. They are not experienced in international competition, and are relatively weak in managing transnational operations. Although China’s overseas investment is growing fast, the investment volume every year is only about US$ 10 billion, less than 2% of the overall global cross-border investment. Therefore the gap is huge when compared with the developed countries.
3, China’s international payment imbalance may persist long.
For every country, the international balance of payments is relative. International payment records the flow of international trade and investment, and reflects the cross-border economic activities. The imbalance indicates the unequal inflow and outflow of trade and investment. Deepening economic globalization causes more and more cross-border economic activities and gradual expansion of the scale of international trade and investment, which are reflected on the balance sheet as larger size of international payment. Owing to the huge differences in the economic structure and development level of different countries, as well as their comparative advantages, it is hard to keep an “in and out” balance in international economic exchanges. Therefore the international payment imbalance has become a normal state of economic operation. In this sense, the international payment imbalance reflects the fact of ever intensifying world economic linkages.
The domestic and international environment decides that China’s international payment imbalance will remain in the long run. Judging by the trend of world economic development, the economic globalization will continue, and the world economic structure will not undergo fundamental changes. Therefore the global economic imbalance cannot be redressed in the short run. The international division of labor will be further intensified, which means China will continue to be a world processing and manufacture base in the future long period of time. Reading the economic development trend of China, one can see that there is a large amount of excessive labor force in rural areas waiting to join the industrial sectors. The industrialization process in China will carry on, and the manufacturing capacity will continue to expand, which will naturally result in the long-term trade surplus of the country.
China’s problem of international payment imbalance should be settled in the course of development. To realize the basic balance of international payments is one of the macro control targets. However measures for the target of redressing the international payment imbalance should not run counter to those for such other targets as promoting the economic growth, increasing employment opportunities and keeping the prices stable.
Third, balanced and coordinated development is the long-term goal of China’s foreign trade and economic policy.
With the deepening of economic globalization and China’s market liberalization, the global economy and the Chinese economy are more and more interrelated and interdependent. Under this new circumstance, we shall, further improve the foreign trade and economic cooperation policies in the process of strengthening and improving the macro control measures so as to reach the basic balance of international payment in the process of development.
1, To improve the macro control instruments in order for stronger capacity in promoting the international balance of payments by macro control policies. The exchange rate policies and import and export tariff policies are a key part of the macro control system, and effective means to promote the international balance of payments.
2, To promote trade liberalization and facilitation in line with the economic globalization trend. Currently, the ongoing economic globalization brings us both opportunities and challenges. We should go with the tide to firmly seize the opportunities and avert the risks. Positive efforts should be made to establish an open, fair and non-discriminatory multilateral economic and trading mechanism. Under the situation of suspended Doha Round negotiations, we should continue to hold high the banner of multilateralism, play a constructive role as a bridge in enhancing the communication among key WTO members, urging the US and EU to show enough political wills, coordinating the positions of the developing countries, in order to facilitate the resumption of the negotiations, and the development of economic globalization towards balanced and universal benefits, and win-win outcomes.
3, To expedite the transformation of foreign trade growth mode so as to improve the efficiency of trade growth. We will thoroughly implement the strategy of revitalizing trade through science and technology, improve the policies and measures promoting the exports with Chinese brands, establish new export bases featuring independent innovation, foster enterprises with strong independent innovation capacity and knock-out export products with proprietary intellectual property and brands.
4, To attach equal importance to the strategic position of the “Going Global” and “Bringing in” policies in order for the coordinated progress in FDI inflow and overseas investment. Facing with opportunities brought about by the global industrial restructuring and the worldwide business redeployment of multinational companies, we will continue to expand our efforts in attracting and effectively utilize foreign investment. We should be active in setting up outsourcing enterprises and bases in order to undertake international outsourcing business. In order to promote the gradual transfer of exported-oriented economy, we will improve the policies, set up platforms and encourage foreign investors to be engaged in the Rising of Central China, Western Development and Revitalizing the Northeast Old Industrial Bases.
Dear comrades and friends, opening up is a basic state policy of China. Under the background of deepening economic globalization, we will unswervingly keep our opening up strategies and guidelines unchanged. We will, in line with the requirements for scientific development and building a harmonious society, coordinate the domestic development and opening up and strive for a steady and coordinated development of foreign trade and economic cooperation.
Thank you
Nov. 5, 2006
(Source: Network Center of MOFCOM)
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