China's foreign trade in 2013 should aim at both structural changes and growth

The recently released China trade figures in 2012 show modest growth for the year after a strong rebound in December. Total value of imports and exports reached $3,866.8 billion, 6.2 percent up from the previous year. Exports were up 7.9 percent, imports up 4.3 percent. The growth rates shrunk by 16.3, 12.4 and 20.6 percentage points respectively compared with 2011. Last year witnessed the poorest performance of China's foreign trade in the three years since the global financial crisis.

Poor external demand, especially due to the ongoing eurozone debt crisis, lies behind this weak performance. Exports to the European Union fell 6.2 percent, which contributed a negative 1.2 percent for China's global exports in 2012.

On the other hand, reduced imports could explain the weaker demand and investment slowdown in China and the poor economic performances elsewhere. This could have led to generally weak commodity prices. For instance, the fall in iron ore import prices had contributed a negative 1.5 percent to China's import growth.

The poor global economic situation last year, however, is not representative of a long-term global trend, although we will see only limited improvement this year. During the past 15 years, China's foreign trade experienced two years of slow growth and another two years of negative growth, namely 1998 (-0.4 percent), 2001 (7.5 percent), 2009 (-12.9 percent) and 2012 (6.2 percent).

Taking the 15 years as a medium-term trend, the annual average growth was 17.9 percent. If the past four years since the global financial crisis is taken as a short-term trend, the annual growth was 10.8 percent, with exports up 9.4 percent and imports up 12.6 percent. As a result, China's exports in 2012 did not deviate much from the short-term trend, and the growth rate of imports deviated considerably.

This short-term trend also shows that the two-digit growth in China's foreign trade before the global financial crisis is unlikely to repeat itself.

The global economy and China's external market situation will remain vulnerable in 2013, although a slightly stronger growth seems likely. As a result, China's exports and imports still face difficulties this year, with modest growth anticipated.

China's foreign trade this year should shift more focus on structural changes and improvements to exports instead of just beefing up the growth rate. There could be structural changes and growth rate improvements in imports as it fell behind the growth in exports last year and caused a surplus balloon.

Trade contributed little to 2012 GDP growth, so there are different views on the role of foreign trade in the global economy. Some tend to focus on domestic consumption and investments only, without attaching enough importance to foreign trade.

This is one-sided. We live in a global economy. No national economy can succeed within its borders only. China's economic performance in recent years has shown a direct link between foreign trade and domestic consumption.

In 2009, when exports fell considerably, the growth rate in domestic retail sales also slowed 7.3 percent compared with the previous year. In 2010, when exports rebounded strongly by 31.3 percent, the growth rate of total domestic retail sales picked up by 2.8 percent. In 2011, when growth in exports slowed 11 percent, the growth rate in domestic retail sales slowed again by 1.2 percent. A stable growth in foreign trade is essential for the domestic economy.

A stable growth in foreign trade, especially in exports, does not mean a growth in rates only. More emphasis should be placed on structural changes and improvements. A distinct feature in China's exports in 2012 was the further decline in the shares of processing trade, which accounted for only 34.5 percent of total trade, compared to almost half a few years previously.

Last year, 20 percent of Chinese exporters had their own product brands; in 2005, it was only at 5 percent. Complaints from the United States on the quality of Chinese exports fell considerably. This year should see a robust step forward in this direction.

However, this does not mean "quality only" exports. All qualities exist in quantities. An improvement in quality usually happens in an expansion of quantity. Lenovo, for example, won the most prizes for innovation among the world's leading computer manufacturers last year and became the world's largest PC supplier. Its sales during Q3 of 2012 alone reached $8.7 billion, up 11 percent a year ago, while PC sales globally fell 8 percent.

Lenovo expanded its market share by 1.6 percent in North America, Asia and Latin America, and 3 percent in Africa, Europe and the Middle East. Lenovo could not have been that successful if it was not expanding the market. The same is true for China.

In the highly competitive world marketplace, if China does not fight to keep existing market shares, others will definitely take them. If China wants to upgrade its products, it have to compete in global markets and win. Winning means an expansion of market shares. Chinese products, if they are only allowed to compete within China but not globally, will never make China a world economic power.

The author is co-director of the China-US-EU Study Center for the China Association of International Trade. The views do not necessarily reflect those of China Daily.

(China Daily 02/01/2013 page7)