Opinion / Opinion Line

China’s demand for services can spur trade growth

By Wu Zheyu and Nie Ligao (chinadaily.com.cn) Updated: 2016-04-14 12:56

3, Like many developing countries, China has long been troubled by the difficulties of trade financing problems faced by small and medium enterprises (SMEs). How can different bodies, including financial institutions, cooperate to facilitate trade financing of international trading enterprises, especially SMEs?

Small and medium enterprises face the greatest hurdles in accessing affordable financing for trade. More than half of the trade finance requests from SMEs are rejected in developing countries, compared to 7 per cent for multinational companies. Global financial institutions need to remain engaged and to ensure that regulations are not prohibitive. In addition, local financial institutions need to expand. To address this challenge, multilateral development banks (MDBs), for example, are extending receivable financing arrangements through local banks to help integrate small manufacturers from developing countries into international supply chains. MDBs themselves can enhance existing trade finance facilitation programs to reduce the financing gap. They can also help to increase the availability of trade finance. MDBs reduce the knowledge gap for local banks to handle trade finance instruments. They also maintain an open dialogue with trade finance regulators to ensure that trade and development considerations are reflected in the implementation of regulations. In addition MDBs are improving how trade finance provisions are monitored to identify and respond to gaps, particularly relating to any future crises.

4, In the World Bank’s latest report , the main reasons of slowing growth rate of global product imports is due to the situation in the Asian emerging markets. The decline of commodity prices and the transformation of growth patterns in China are two factors that mutually reinforce each other, which lead to weakening demand of imports among emerging economies. Could you tell us about the possible opportunities that could be brought by transforming growth patterns in China?

Rising wages in China may encourage industrial production and exports from lower-cost developing economies. The gradual rebalancing of the economy from investment to consumption is also shifting China’s demand from goods to services. Part of this demand and where growth is already visible is in cross-border imports and consumption abroad. Services imports have grown from around 15 percent of all of China’s imports at the beginning of 2011 to close to 22 percent in the first half of 2015. If services markets become more open, China’s increasing demand for services could spur further trade growth in the services sector.

5, In your interview with caixin reporters in Davos this Jan., you mentioned that we should strengthen international cooperation and foster cross-border production and feasibility. Meanwhile there is still a need for a multilateral regulatory system to reduce conflicts, contradictions and fragmentation among international trade and investment. Will this multilateral regulatory system be on the agenda in this September’s summit? What would be the key principle to construct this system?

Trade and investment flows have become increasingly integrated, interdependent, and globalized, yet the architecture of rules and regulations which underpin them is made up of a complex web of bilateral, regional and multilateral agreements. Although these agreements are all broadly aiming to promote greater economic openness, cooperation, and certainty there are invariably inconsistencies and contradictions in their application, as well as gaps in their coverage. A number of countries and regional groups are in the process of revising and updating their international trade and investment relations, including by negotiating Regional Trade and Investment Agreements to address these new coherence and coordination issues within a common legal framework. As I said earlier, it is possible for regional and multilateral negotiations to advance in parallel. However, more work is very much needed to monitor the coverage and implementation of regional trade agreements and to analyze their effects.

6, What do you think is the potential of global capacity cooperation to narrow economic disparity? What factors would you pay special attention to in China’s coming reform?

Pro-poor trade and investment is one reason we have made enormous progress over the last 25 years to reduce poverty across the world. For example, since 2000, developing countries’ share of world trade has grown from 33 to 48 percent. This helped stimulate growth in low- and middle-income counties, and accelerated poverty reduction. Global economic cooperation through bilateral, regional and multilateral trade and investment agreements is therefore not a choice, but an imperative in today’s world to narrow economic disparity. Poverty will only be eradicated through more growth, more jobs and enhanced productivity and global economic cooperation can play a key role in promoting the reforms that are needed, opening markets and bringing about more and better trade and foreign direct investment. The benefits, however, are not automatic. Countries need to embed their enhanced economic cooperation in a broader context of promoting competitiveness by improving their business climate, reducing the costs to trade, fostering connectivity via hard and soft infrastructure, improving the skills of the workforce, and promoting entrepreneurship and innovation, among others. The Chinese authorities appear to be well aware of the importance of these supply-side reforms as part of the country’s current transition.

 

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