Uphold sound trade balance
By Jin Baisong (China Daily)
Updated: 2004-08-23 10:17

With a US$523 billion trade volume from January to June, a 39.1 per cent surge year on year, it is beyond doubt the annual trade volume will exceed US$1.1 trillion to hit an all-time high.

While delighted at the booming scenario, however, we should not forget that constant growth is based on the equilibrium between demand and supply. Excessive growth may break the delicate balance and create negative repercussions on domestic as well as the world markets.

International price indices have rallied since the beginning of 2002, and by the end of last year surpassed a crest index level from 1996.

Hideya Taida, chairman of Japan's leading Marubeni Research Institute, pointed out that the current price increase originated from rudimentary products and spread to raw materials, then to medium products, and will finally cover end products. He went further to conclude that unless countries co-ordinate controls, price growth will ignite global inflation in three years.

The global economic climate could lead to inflation at home through export and import channels. The impact of China's mass exports on international prices will boomerang through imports.

Some domestic economists have pointed out that if the price of rudimentary products in the international market increases by 30 per cent, it will cause a 5 per cent increase in China's overall import prices. The domestic consumer price index will therefore grow 0.6 per cent and investment cost 1 per cent, resulting in a 0.2 per cent drop in gross domestic product.

International oil price hikes have cost China an extra US$5.95 billion and US$3.1 billion in imports in 2000 and last year, respectively. China also paid US$450 million and US$240 million extra money, respectively, in importing aluminum oxide and copper ore last year because of price rises in international markets.

These additional foreign currency expenses will be shifted from upper reach to lower reach products and finally be a burden to consumers.

The robust growth of foreign trade may also yield friction and even add to the tensions on diplomatic and political fronts.

China is now the world's top target of anti-dumping cases, and many rich countries are reportedly considering excluding China from the generalized system of preferences which was designed to cater to uncompetitive developing economies.

Some foreign opinions on China are biased. China's low-priced exports are blamed by some for global inflation, whereas its import boom is now attributed as a source of inflation worldwide. China was urged to stabilize its currency after the 1997 Asian financial crisis, but recently has been criticized for not letting the yuan depreciate. Some critics of China's "ignorance and backwardness" decades ago are now trumpeting a China threat theory.

All these show that trade is not always a pure issue of business and often involves political and security concerns.

When further involved in the international market, China should watch risks concerning national economic security.

For example, the exploration of international oilfields is controlled by major Western conglomerates. They dominate global oil market and futures transactions. They are also able to reap huge benefits from the reconstruction of Iraq.

Another example is the exploration, smelting, production and marketing of copper, all controlled by foreign companies. They have noticed the soaring demand for copper in China and pushed copper prices skyward this year. As a result, China will have to pay dearly for improving installed electrical-generating capacity which is crucial to easing the country's serious power shortages.

In face of a US$1.1 trillion trade volume, are we ready for the challenges to our economic security?

It is time to adjust major domestic economic policies in line with exuberant trade as well as the growing interaction with the global economy.

The government should deliberate and find a sound mechanism that will maintain a mobile balance for the domestic economy amid growing business exchanges with the outside world.

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