BARBIE KINGDOM: China’s exports consist mostly of assembled goods, like these Barbie dolls. This level of manufacturing activity adds little value to a product
　　
　　Last year, China’s trade surplus totaled $101.9 billion, more than triple that of 2004, arousing great concern among its trade partners. According to statistics recently released by the General Administration of Customs, China’s monthly trade surplus in January this year rose 46.7 percent from a year ago to $9.49 billion, while its total trade volume rose 26.8 percent year on year to $120.5 billion. Exports from China grew to $64.9 billion in January, a 28.1 percent rise over the same period last year, and imports hit $55.5 billion, up 25 percent year on year.
　　Does this mean that China is the biggest beneficiary of world trade? “Look, a Barbie doll costs $20 but China only gets about 35 cents of that,” The New York Times quoted Dong Tao, an economist at UBS, as saying. Barbie dolls are not alone. This profit distribution pattern is true for most products made in China, from shoes to CDs.
　　Some speak of the “smiling curve,” which shows the value added to a product at each part of the manufacturing process from research and development until it reaches the consumer. China’s strength lies squarely in the “chin” of the curve. In contrast to the high value added upstream and downstream of the supply chain, the assembly process that makes up the midstream portion is not only the process that adds the least value to a product, but is also becoming increasingly unprofitable due to intensifying competition.
　　Worse still, China has been turned into a country most prone to anti-dumping investigations. According to the Ministry of Commerce, it has been subjected to more such probes than any other country in the world for the 11th consecutive year.
　　How is the climate for China’s foreign trade development this year? What are the advantages and disadvantages? Will the rapid export growth be sustained? The Economic Observer newspaper spoke with Lu Jianhua, Director of the Foreign Trade Department of the Ministry of Commerce, about these issues.
　　The Economic Observer: China’s foreign trade registered a growth rate of 23 percent last year, the fifth consecutive year boasting a growth rate of over 20 percent. Will the momentum be maintained in 2006?
　　Lu Jianhua: It will be difficult. Generally speaking, China’s foreign trade will continue to undergo rapid development in 2006, but the growth rate is expected to drop. According to our estimation, the total foreign trade volume will amount to between $1.63 trillion and $1.70 trillion, up 15 to 20 percent. The trade surplus is projected to remain large, but possibly a little smaller than 2005.
　　
　　What are the factors that will contribute to the growth rate decline?
　　
　　The primary factors are the imbalances in the global economy and rising trade frictions. The United States is currently suffering from a remarkable deficit in its foreign trade and federal budget. How it remedies this situation will have a bearing not only on the performance of the global economy and the dollar, but also on a series of issues including the exchange rate and trade policies of different countries. China, in particular, will run into more trade disputes with the United States on RMB exchange rate, intellectual property rights protection and market access.
　　It should also be noted that international trade has been beset by structural imbalances in recent years, with trade protectionism mounting. However, China’s skyrocketing exports have heightened the dependence of some of its competitive products on major international markets. As a result, trade frictions are unlikely to be eased in 2006. It is estimated that newly initiated trade cases, together with cases started in 2005 that have yet to undergo arbitration procedures, will be worth over $5 billion.
　　New trade frictions may occur between China and the EU and the United States on light textiles, automobile parts, home appliances, chemicals, and iron and steel. China will also have to deal with trade disputes involving intellectual property rights, technical standards, hygiene standards, environmental protection standards and social accountability.
　　In addition, China’s foreign trade faces other uncertainties such as the risk of a global economic bubble, the unstable exchange rate of the dollar and fluctuations in crude oil prices.
　　In the domestic market, the excessive production capacity of some industries and the discrepancies between supply and demand constitute a stumbling block. As domestic consumer demand has shown no noticeable increase, heavy pressure on exports will persist. According to our survey of 600 major consumer goods, a total of 170 had a relatively balanced supply and demand, while 430 had a greater supply than demand. No goods surveyed were in short supply.
　　Does that mean China’s foreign trade growth and its contribution to the national economy will hit an inflection point?
　　
　　
　　TRADING POWER: Foreign trade is an important engine powering China’s rapid economic growth
　　
　　The notion of an “inflection point” is a rather pessimistic one. As a matter of fact, the advantages outweigh the disadvantages in 2006. Foreign trade will continue to be a major force driving China’s economic growth.
　　The latest estimations of the International Monetary Fund show that the world economy will grow by 4.3 percent this year, on a par with last year. World trade is estimated to grow by some 7.4 percent, slightly higher than last year. The demand in the international market is anticipated to rise.
　　A consumer confidence survey in the United States at the end of last year showed that the index rose to 103.6 for December from 98.3 in November. It is obvious that a sounder consumer market in the United States is conducive to China’s exports to the country. Growing demand in the international market also helps Chinese companies to expand their exports.
　　Evidence from various sources indicates that while the strain on coal and electricity supplies and transportation capacity is likely to ease to some extent, price hikes of raw materials in domestic and international markets may hopefully be reined in, something good for an improved foreign trade climate.
　　In addition, the export tax rebate mechanism, which is poised to ensure stable export growth, has been largely put in place. As regional governments were made responsible for 7.5 percent instead of 25 percent of the tax rebates on local exports last year, their financial burdens were considerably lightened. All tax rebates have since been paid on time jointly by the Central Government and local governments, relieving foreign trade companies of fund shortages.
　　In light of the new foreign trade climate this year, to what areas do you think China’s import and export firms should commit their greatest efforts?
　　China’s foreign trade enterprises are supposed to step up innovation and research and development, thus making their products technologically sophisticated and avoiding competing with each other with identical, low-end goods. They should also recognize the importance of proprietary brands, credibility and trade rules. While abiding by international rules, they should be good at protecting themselves by using these rules. Able companies are encouraged to establish an international presence and to tap their own sales channels in particular, in a bid to reverse the unfavorable “smiling curve.” Every industry is expected to strengthen internal coordination and self-discipline in the spirit of dealing with trade frictions and fending off risks in a collaborative manner.
　　The Ministry of Commerce has vowed to concentrate on the “transformation of the foreign trade growth pattern” in 2006. What exact measures will it take?
　　The focus is on promoting the readjustment of China’s foreign trade structure. Priority will be given to the following areas:
　　First, improving the import and export mix. The foreign trade monitoring and early warning system will be strengthened to mitigate operational risks. We will begin with the monitoring of essential commodities such as energy, resources and bulk agricultural goods.
　　In the field of agricultural goods, we will encourage the export of processed agricultural products while certifying the products and the manufacturers’
　　production processes. We will help the light industry associations to improve international recognition of this industry so as to address the non-trade concerns of the EU and the United States, such as
　　technical standards and corporate social accountability. We will promote “green textile products” that are manufactured by using energy-saving and environmentally friendly techniques. Innovative design will also be underlined to boost the quality and profile of Chinese textiles.
　　Second, expanding imports in an appropriate manner and optimizing the import mix. The importation of advanced and new technologies, vital equipment and resources that China lacks will be encouraged, and so will imports from developing countries, especially the least developed countries. At the same time, we will render support to large Chinese retail companies to conduct international procurement and establish their own sales channels. Private enterprises will also be given an impetus to expand imports.
　　Third, creating a sound environment for the development of foreign trade. A series of measures aimed at keeping China’s foreign trade in good order will soon be adopted.

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