Slower trade growth means consumption will have to make a larger contribution to the economy

China missed its foreign trade target last year. According to the General Administration of Customs, the world's largest trader imported and exported 26.43 trillion yuan ($4.26 trillion, 3.6 trillion euros), a 2.3 percent increase year-on-year, a far cry from the 7.5-percent target set at the beginning of the year. This is the third consecutive year that China has missed its yearly trade target.

In 2012, foreign trade grew 6.2 percent, lower than the yearly goal of 10 percent. In the following year, trade growth stood at 7.6 percent, slightly lower than a target of 8 percent.

This constant failure to meet targets reflects several new trends.

To be clear, we must admit that China's trade has entered a new normal, a phase created by President Xi Jinping to describe China's new economic conditions featuring slower economic growth and painful restructuring. In line with the changes in economic conditions, China's trade will also slow down. The high double-digit growth for trade in the first decade of the new century, supported by China's entry into the World Trade Organization and exceptionally strong global demand, is very unlikely to be repeated in the years to come. Single-digit growth will be the new normal for China's foreign trade.

What's more, trade is contributing less to economic growth. In decades past, trade surpluses accounted for about one-third of GDP. But in recent years, the percentage has fallen. In 2012, the contribution rate was 9.6 percent, followed by a negative 4.4 percent in 2013. In 2014, it is estimated at no more than 5 percent. It is clear that China is moving toward a better trade balance, a change that serves as a good sign for economic restructuring. Slower trade growth means consumption will have to make larger contributions to the economy, a change that is good to both long-term economic growth and environmental protection.

With foreign trade contributing less to GDP growth, it is expected that a change in mindset will happen among policymakers at both central and local levels. The fact that trade growth targets set by the government were higher than real growth over the past three years is evidence that policymakers are addicted to export- and manufacturing-led economic growth. Their constantly optimistic trade prognoses convey the message that trade can continue to bolster the economy. But now that they have been taught a lesson, they will have to change their minds and shift away from the old practice of giving too much policy support, such as land grants, financial offers, tax breaks and subsidies in various forms, to low-end manufacturers and exporters. Many of these preferential policies are not conducive to economic restructuring.

In addition, the new normal in foreign trade means China's trade surplus will be narrowed, alleviating the pressure for a stronger yuan. That will give more leeway to financial policy, with the yuan exchange rates being able to test for two-way movements.

This year, the Ministry of Commerce seems to be more realistic in setting a growth target for foreign trade. This month, Minister of Commerce Gao Hucheng said the goal for this year is 6 percent, the lowest in more than a decade.

The target is achievable, as it is likely that, in the new economic conditions, trade growth will be basically on par with GDP growth. GDP is expected to grow at about 7 percent.

Although China's trade performance depends on the performance of the global economy and demand, which are uncertain, there are a few favorable factors.

Statistically, this year's trade will be built on a small base. Last year, trade did not perform as expected partly because of a high base. In 2013, fake trade - speculative money flows under the guise of trade - distorted the data, greatly lowering the growth rate last year. But fake trade, despite a comeback in recent months, was largely curbed last year, which is good for this year's statistical comparison.

In terms of policy support, it is expected that newly approved free trade agreements with other economies such as Australia will be translated into real results. The Chinese government's push for Silk Road initiatives on land and sea can channel the country's excessive production capacity to overseas markets, thus boosting China's exports.

On the import side, although domestic demand for consumer goods may remain stable or grow more slowly, it is expected that imports for raw materials can offset or even surpass that loss. The prices of raw materials such as crude oil have been near bottom and are likely to bounce back this year. Therefore, even though China's imports of these materials may not jump significantly, the price rise will help boost import value.

So long as global demand and domestic production remain stable, the 2015 trade target is attainable.

The author is a researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 01/16/2015 page11)