Processing industry at root of trade imbalance

Updated: 2011-01-06 13:58

By Ding Qingfen (China Daily)

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BEIJING - Even a large appreciation of the yuan will not substantively reduce China's trade surplus with the United States, as US operations in China are the major source of the bilateral trade imbalance, said a vice-minister of commerce on Wednesday.

"Any adjustment to the yuan exchange rate will have a limited impact on decreasing the trade surplus with the US," said Jiang Yaoping, vice-minister of commerce, at a forum held in Beijing.

Jiang made the remarks a few days before President Hu Jintao's official visit to Washington, during which the US has vowed to raise the currency issue and trade imbalance.

The US has been pushing China to allow its currency to rise during the past year thanks to the huge trade deficit, despite the rising yuan during the second half of 2010.

But Jiang said the real beneficiary of the surplus is the US.

"About 80 percent of China's trade surplus with the US is created by US multinationals operating in China," he said.

From January to November of last year, China's trade surplus with the US grew by 28 percent from a year earlier to $167.31 billion, said the General Administration of Customs.

Meanwhile, the yuan had appreciated by more than 3 percent in 2010 after China removed its two-year peg against the dollar. Some economists predict that the yuan will rise in value by 5 percent this year.

China is expected to release export and import figures for 2010 on Jan 10, and Chen Deming, minister of commerce, said China's trade surplus will shrink slightly to $190 billion from $196.1 billion in 2009.

In anticipation of President Hu's visit, the US National Security Adviser, Tom Donilon, said in a White House statement that it is important that "China takes effective efforts to reduce imbalances in both the global economy, as well as in US-China trade".

Since the financial crisis, critics claim that China is the major source of the global trade imbalance.

Related readings:
Processing industry at root of trade imbalance China's trade surplus hits $22.89b in Nov
Processing industry at root of trade imbalance China takes little profit but big surplus from processing trade
Processing industry at root of trade imbalance Chinese manufacturers increase trade figures, but multinationals enjoy most margins

At the forum, Jiang said that a large part of the trade imbalance could be explained by the "processing industry", in which multinational firms import intermediate goods from other countries and assemble them as finished products in China before exporting them overseas.

As a result, despite contributing only a portion of the manufacturing process, the finished product is recorded entirely as a Chinese export.

"Multinationals, especially those in the laptop sector, create more than 80 percent of the surplus, and the export of laptops contributes to about half of China's surplus in the processing trade," said Jiang.

According to the ministry, 95 percent of laptops worldwide are assembled in China. While their US counterparts earn over 50 percent of the profits, Chinese original laptop manufacturers earn about 4 to 5 percent.

Through its monopoly in the ownership of technology and software, it is the US that occupies the top end of the value chain, Jiang said.

Zhou Siyu contributed to this story.


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