Trade deficit benefits economy
By Zhao Renfeng (China Business Weekly )
Updated: 2004-06-10 14:23

China's widening trade deficit in recent months will likely continue, and, if managed at a controllable pace, will likely contribute to the nation's economy, suggest senior trade experts.

"China is now in an irresistible trend, to become a country with a trade deficit," Long Yongtu, secretary-general of the Bo'ao Forum, told an economic forum at Renmin University of China last week.

"We should now see trade deficits with a new angle in the era of globalization. Becoming an importing country is helping China benefit from international trade," Long said.

Long was China's chief negotiator during the nation's World Trade Organization entry talks with other countries.

China, as a global trade partner, must pay greater attention to its imports, Long said.

By increasing imports, China can improve its economic structure and introduce new technologies, which should help China keep up with its fast-growing economy, Long added.

"In international trade, countries that attain real benefits are not exporters, but importers," Long said.

"China's imports are providing a new market for its neighbouring countries. That, again, emphasizes China's role in international trade."

Experts agree a short-term trade deficit is conducive to China's stable economic growth, and should help the country resolve some dilemmas.

Zhao Jinping, a trade expert with the State Council's Development Research Centre, said the current trade deficits will reduce global pressure on China to appreciate its currency -- the renminbi.

Over several years, Zhao said, China's trade surplus has increased the inflow of foreign capital into the country, which has added to the pressure for China to revalue its currency.

The trade surplus also spurred the inflow of "hot money," as speculators bet authorities would revalue the renminbi.

Zhao said the emergence of trade deficits in recent months will cool off expectations of the renminbi's appreciation, which will ease market pressure on the currency.

The trade deficits will also ease economic overheating and reduce inflationary pressures, Zhao added.

Trade deficits, he added, indicate export growth is slowing.

China can compensate for slower export growth by increasing domestic demand, Zhao said.

That, he added, will help China achieve a stable, 7-per-cent economic growth, and will cool off some overheated sectors, which are relying too much on exports.

Experts said a good import structure means imports with more raw materials and energy resources, which can lift a country's productivity.

"It is, in reality, a kind of investment," said Li Yushi, vice-director of the Ministry of Commerce's Chinese Academy of International Trade and Economic Co-operation.

Many experts agree China should promote imports over a rather long period of time, and that the red link of trade deficits will likely extend for a while.

China's trade deficit widened sharply in April, to US$2.26 billion from US$540 million in March, due to the growing demand for raw materials and energy resources.

That was the fourth consecutive monthly trade deficit this year.

Exports rose 32 per cent in April, compared with a year earlier, to US$47.1 billion, and imports jumped 43 per cent, to US$49.4 billion.

In the year's first four months, China's exports reached US$162.74 billion, up 33.5 per cent from a year ago, and imports rose 42.4 per cent, to US$173.5 billion.

The January-April trade deficit was US$10.76 billion.

Analysts say the trade deficit was due mainly to increasing imports of raw materials -- including oil, iron plates, steel, copper, iron ore and cotton.

The widening trade deficit has become fairly eye-catching for analysts and trade officials, as the red link has been rare for the fast-growing economy.

Since China launched its policy of reform and opening-up in the late 1970s, the country has gone from a period of trade deficit to trade surplus.

China from 1978-89 was in the red, in terms of trade, for 11 years, with the exception of 1983. Since 1990, China had been chalking up trade surpluses, with the exception of 1993.