As global recovery inches forward and debt crises spring up in the EU, China faces many barriers to success.

China's foreign trade increased dramatically in February, with exports and imports rising by 45.7 percent and 44.7 percent, respectively, over the same month last year, according to statistics from the Customs office.

Related readings:  Beijing Jan-Feb foreign trade value up 70%  China's foreign trade up 45.2% in Feb  China's foreign trade faces more pressure in 2010

Though the strong showings make the case that domestic businesses are confident in the economy's future, it's still too early to conclude that the level of foreign trade has returned to its days of "golden growth".

The encouraging data won't hide a number of uncertainties with the economy. The global economic recovery is tepid at best, and supply and demand around the world remains imbalanced. Policies in major countries remain precarious; political games between nations are still fierce.

The global economy is expected to turn a corner this year and offer China's economy a better climate in which to do business. According to the International Monetary Fund (IMF), the global economy will grow by 3.1 percent this year with developed economies expected to increase by 1.3 percent and developing economies, 5.1 percent. But developed countries won't have as much room to expand their financial and monetary policies.

In the United States, the fiscal deficit amounted to $1.4 trillion last year, 3.1 times the previous year's figure. It was also Washington's highest deficit rate since World War II. In other Western countries such as Germany and France, the government deficit rate also exceeded 3 percent, a level that the two countries had expected to control. In Japan, the deficit to GDP ratio was as high as 9.4 percent. Despite their moderate economic recoveries, major countries around the world are still mired in high unemployment rates that are at risk of worsening with local consumption slowing. New investment in industries has also failed to materialize in these countries and their industrial production hasn't moved forward as it once did prior to the global financial crisis.

The low rate of capacity utilization in manufacturing (basically, the actual output from manufacturing equipment as opposed to the potential output), in leading economies around the world has not been resolved despite a moderate rise shortly after the crisis. In January, the rate in the manufacturing industry in the US was 72.6 percent, 8.3 percentage points lower than the average of 80.9 percent from 1972 to 2008. In the European Union, the figure was 72.4 percent, far lower than its average in previous decades.

Investment in major economies also remains soft. Last year, enterprise investment in the US declined 17.9 percent from the previous year, the largest drop since 1942. The lingering recession in the global economy and insufficient global market demands will pose major hurdles to China's economic development.

To tackle the unprecedented economic recession, developed countries are more inclined to turn to protectionism to boost their own economies. In recent months, China has been embroiled in a spate of trade spats with Western countries over the country's exports, such as tires, clothes and phosphate. This is an inevitable result of the growing trade protectionism in these countries and their accelerated shift to develop their economies that are leaning on manufacturing .

To boost their economic recovery, developing countries with the same or similar industrial and trade structures as China will strive to compete with the world's third largest economy for global market shares, brewing trade frictions among them. China must deal with the concentrated outburst of trade rows with trading partners within the next five years as "Made-in-China" products fall victim to trade protectionism throughout the world.

In his State of the Union address, US President Barack Obama vowed to double US exports within five years and said his government will launch a campaign to promote American brands and boost exports. This signals the start of a trade war between the US and China but it won't be the end. It matters little if China merely turns to World Trade Organization rules to resolve trade disputes. Breaking through these trade barriers lies in whether or not the country will take essential steps toward revamping its industries and realize a transformation of its economic growth model.

The recent debt crisis in some Western countries, coupled with China's exchange rate policy, will also bring uncertainties to the country's economy. The debt crisis in Greece serves as a possible trigger to a bigger bomb of debts in all of Europe. Last year, government deficits in the European country were over 13 percent of its GDP. The ratios in Ireland and Spain were 10.8 percent and 10 percent respectively. The debt crisis in the three most-battered nations in the EU could spread to other bloc members. France and Germany, two major economic locomotives in the bloc who have been in comparatively good economic shape, were also hit by enormous deficit last year of 5.5 percent and 8.2 percent respectively. The widespread deficit crisis, if not effectively handled, will possibly trigger a full-blown debt crisis across the EU.

The spreading of the debt crisis to other developed countries will add uncertainties to the world's capital market, which will further complicate China's foreign reserve investments. Due to uncertain factors involving the country's RMB exchange rate and its macroeconomic policy, the possibility for an inflow of overseas capital is growing and expectations for a stronger yuan are rising.

The escalated Sino-US trade frictions have increased pressure on China to revalue its yuan. Obama and financial tycoon George Soros have both accused China of lowering the yuan's value and have urged other emerging markets to join in pressuring China to appreciate the RMB's value.

China must brace itself for a long list of disagreements over its monetary policy as well as possible trade wars with the US, EU member nations and other trading partners.

The author is an economics researcher with the State Information Center.

(China Daily 03/19/2010 page8)