Growth concerns in global markets signal need for China to change tack

Even as the Chinese government came out with a better-than-anticipated economic report card for 2012, several industry experts expressed concerns over the flagging performance of the country's key growth indicators.

Exports, foreign investment and domestic consumption, the triumvirate responsible for economic growth, all came in with considerably lower-than-anticipated numbers last year, raising concerns that the current pattern of economic growth was not sustainable in the long run.

In 2012, China's year-on-year export growth slowed to 7.9 percent, compared with a 20.3 percent jump in 2011. FDI dropped 3.7 percent to $111.7 billion (83 billion euros).

A rough estimate showed that China's GDP growth would be around 7.8 percent in 2012, the lowest in 13 years.

However, some experts say even though the numbers are a matter of concern, it does not call for a total reorientation of the existing strategy. Instead, they say the focus should be on growing imports.

Song Hong, a researcher with the Chinese Academy of Social Sciences, is one of the experts who feel that imports are the best way to stimulate future economic growth.

"It is very inappropriate to think that increasing imports is an embarrassment for China. On the contrary, imports can be a major driving force for China's economy. The United States has the world's largest trade deficit, but its economy has been developing at a tremendous speed for the past several decades," he says.

Song says it is about time China changes its foreign trade structure.

"After more than 30 years of reform and opening-up, China's advantage in low labor costs no longer exists. It is important for us to reposition China in the global trade distribution chain," he says.

Boosting imports is expected to stimulate domestic spending, facilitate a global trade balance and create a better external economic environment for China, Song says.

"The bitter trade spats between China and other nations are often due to China's growing trade surplus. If China can import as much as it exports, and achieve a trade balance, it will be easier for exporters to scout for new opportunities in overseas markets," he says.

Vice-Minister of Commerce Zhong Shan in his address to the China Import Forum 2012 in November reiterated China's determination to boost imports in the long run. "It is a long-term strategy with great potential," he said.

From 2002 to 2011, China's annual import value jumped from $295.3 billion to $1.7 trillion, accounting for 9.5 percent of the total import value globally, and a sharp increase from the 4.4 percent recorded in 2002, according to statistics from the General Administration of Customs.

As the second-biggest importer worldwide, China is also the third biggest export destination for US products and the EU's second-largest export market.

"China's growth has created a huge demand for products and technology imports, and that will bring about great opportunities for both Chinese and international enterprises," Zhong said.

In November, the Ministry of Finance released new import tariffs for 2013 on 784 imported products as part of a major effort to boost domestic consumption, effective from Jan 1. The temporary adjustment will allow the products to be imported at tax rates lower than the most-favored-nation tariff.

The 20-percent temporary import tariff for some infant milk powders was lowered to 5 percent this year. This might also solve the problem of Chinese customers bulk buying milk powders from stores in many foreign countries.

According to Australian newspaper the Daily Telegraph, Chinese tourists have been buying up baby formula in major supermarkets in the country. The Chinese milk powder purchasing frenzy has also affected local markets in other countries such as New Zealand, the Netherlands, Germany and Denmark.

Song Liang, an analyst from Distribution Productivity Promotion Center of China Commerce, says that a lower milk powder tariff might solve the problem and bring more profits to foreign producers in the Chinese market.

"China's demand for milk powder is tremendous, with an average of 17 million babies born every year. About 80 percent of China's milk powder market is occupied by foreign brands. If the lower tariff can result in lower prices for these products, there is no need for Chinese consumers to purchase milk powder from foreign countries," he says.

Zhang Li, a researcher with the Chinese Academy of International Trade and Economic Cooperation, says that boosting imports can not only stimulate domestic demand, but also facilitate the country's exports.

"Importing high technology and equipment can add more value to China's exports," she says. "Boosting imports alone cannot be a driving force for the healthy development of China's economy."

However, there is still much to be done for China to realize this goal.

One problem that needs to be solved is that customs clearance procedures are still too complicated and often take a long time.

It is a problem that Wang Liqin, 52, owner of a furniture import company in Suzhou, East China's Jiangsu province, faces on her frequent business trips to Ho Chi Minh City in Vietnam to source padauk wood furniture.

"Business has been good in recent years, considering China's good trade relationship with Vietnam and the huge demand for good quality padauk furniture. The only problem is that customs clearance is often too slow and requires a lot of paper work and certificates. This also delays payments and hence the cash flow," she says.

Wang says normally she has to take orders three to four months in advance due to the lengthy and cumbersome customs clearance procedures.

"It will take at least one month for customs clearance, and it will be longer during national holiday periods," she says, calling for procedures to be simplified.

Song from the Chinese Academy of Social Sciences also admits that complicated procedures are hampering China's imports.

"Certain procedures must be simplified so that more people are willing to join the import trade. Since China has been focusing on boosting exports for the past three decades, many people look down upon imports. It is the government's duty to encourage them," he says.

He says that China should lower import tariffs on an even wider scale to cover more goods.

"It was good to see import tariffs being lowered three times in 2012, and it reflects China's determination to boost imports. However, items such as luxury bags, cosmetics and jewelry are still not covered by these reductions. If the tariffs on these products can be lowered, Chinese consumers will choose to buy the imported products in China itself rather than from overseas markets," Song says.

Vice-Minister of Commerce Zhong had said that sustainable development of China's imports could be achieved only through the concerted efforts of both Chinese and international companies.

"China will go on optimizing its import structure and improving the import system, while foreign markets should lift the bans on export of high-technology products to China," he said.

yanyiqi@chinadaily.com.cn

(China Daily 02/01/2013 page6)