Chapter 2.1: Key Issues in the Development of China s Foreign Trade

Liu Xiangdong, Vice Ministerial Chair, Ministry of Foreign Trade and Economic Cooperation, PRC

Overview

Since the establishment of New China, especially after the adoption of reform and the open -door policy, rapid development has taken place in China's foreign trade. In 2001 the value of China's foreign trade amounted to US$509.77 billion, comprising US$266.15 billion in exports and $243.61 billion in imports. In a span of 22 years (1979 “2001), the total value of foreign trade, exports and imports has been growing at rates of 15.7 per cent, 16.2 per cent and 15.2 per cent respectively. In the meantime China's trading status has surged from 32nd to sixth in the world. Foreign trade has proven to be an essential contributor to the development of our national economy. It is estimated that every 5 per cent of growth in exports contributes 1 per cent to growth in the national economy. At this rate China's exports have been accountable for over 2 per cent of the growth in the country's economy. Therefore, while invigorating domestic demand, a rapid, sustainable performance in foreign trade plays a pivotal role toward the grand goal of China's socialistic modernization.

We are aware that we shall encounter various obstacles en route, some of which may be unpredictable. We are confident, however, that the foundations for foreign trade development are well in place. First, we enjoy the advantage of our socialist system and the guidance from the Communist Party, as well as the evolving socialist market economy. All these combine to ensure national integrity and individual prosperity since they aim at mobilizing social commitment and maximizing the utility of all our available resources, which in turn will lead to enormous spiritual enhancement and material wealth. Second, our international competitiveness has been improving on the basis of continuous economic growth and the implementation of education and technological progress strategies. Already, China ranks sixth in the world in terms of its GDP, and its economy is expected to continue growing by about 7 per cent over the coming years. This has provided a solid base for China's export increase as well as gearing up demand in the domestic market. Third, national unity and the traditions of the Chinese people have highlighted China as a market unique for its abundant, hardworking, high- quality and low-cost labour. The diversified market structure helps to give China a strong manoeuvrability in turning around market fluctuations across the world. In addition, China is rich in many types of natural resources, yielding a large potential for value creation and stable market prospect. Fourth, China is able to take advantage of the current international environment in which peace and development are the two predominant themes.

The world is poised for further diversification and every country is striving toward integrated competitive advantage. More and more countries begin to realize that scientific and technological progress is the primary motive behind economic development. They also begin to pay attention to renovating their national economic structures. At the same time, international cooperation and coordination in economic development have become increasingly prevalent . We are also cognizant that the world economy will continue to fluctuate, that it will take some time before a full recovery unfolds, and that economic recession in certain countries and regions will frequently surface. Nonetheless, the world economy is unlikely to plunge into an all-round depression and there will not be fundamental upheavals in the broad international spectrum. Therefore, there will be opportunities and additional room for China to expand its presence in the world market. Finally, through two decades of operating in the world economy, China has accumulated a wealth of experience, and a sizable pool of talents, to cope with sudden changes in the global economy and marketplace . Accession to the World Trade Organization (WTO) has brought China new opportunities for its foreign trade development, and the external operating environment will be greatly improved, providing an expanded platform for various Chinese industries to play more visible roles in the global market.

We cannot overlook the challenges before us. First and foremost, with the acceleration of economic globalization, international trade will be further intertwined with international finance. The instability of financial markets definitely exerts a negative impact on trade expansion. Besides, we have noted that the onset of financial crisis occurs in a speedy and rampant manner, and the forces behind it are so complex that they are hard to predict. Our foreign trade system and mechanism are not responsive enough to the changes and, more often than not, the counter measures are lagging, thus rendering China vulnerable to financial exposure. The second challenge is directly related to the international economic environment. The general slowdown of the world economy and intensified competition underline the rise of trade protectionism. Quite a number of countries, developed countries in particular, are devising numerous measures to erect a basket of tariff and non- tariff barriers. Technical and legal barriers, for example, in the name of environment and health conservation, various types of anti-dumping and countervailing measures have been deployed for the protection of domestic markets and industries. All these movements pose a restraining force against the cultivation of the international market for Chinese businesses. The third challenge is generated from within. Chinese enterprises are still wrestling with the establishment of proper corporate governance and a fair market order that are compatible with the law of competition. The basic principles of a modern corporate system, for example, independent operation, company responsibility for its own loss and profit, self-sustained growth and self-discipline, will have to be revisited. Various chambers of commerce have been unable to function in their expected roles for internal regulation and coordination. As a result, unfair competition has long been an overriding concern. Confronted with the harsh reality of today's rising protectionism, this tends to be no less harmful than suicide attempts.

The fourth challenge involves the concept of quality among Chinese enterprises. In spite of 'winning through quality' strategies, we observe considerable room for improvement in our perceptions of quality and brand management. Unethical or even illegal behaviour, such as counterfeiting and piracy, continue to undermine our reputation in the world market. Finally, the role of government in foreign trade administration has to be redefined. We have been accustomed to government intervention which dampens the motivation of market players. Now we have to learn more to lean on indirect measures for overall coordination so as to bring the market mechanism into full play.

To seize opportunities, and to preserve advantages while avoiding threats, the following key issues will have to be dealt with for the sake of achieving sustainable development in China's foreign trade.

^[*] This chapter was originally written in Chinese and was translated by Professor Liu Baocheng of the University of International Business and Economics