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At the Second Session of the 12th National People's Congress on March 5, Premier Li Keqiang presented the Report on the Work of the Government, where he reviewed the achievements in economic and social development, analyzed the current situation and problems with insight and proposed government work plan and policy emphasis for this year.

The report involves all aspects of China’s economic and social development, of which foreign trade is an integral part. It says that through building a new mechanism for an open economy, China will advance its opening up process, push forward the domestic reform and structural adjustment, and accelerate building new international strength, thus promoting opening up to a higher level.

In 2013, China’s volume of foreign trade increased by 7.6 percent year on year. Although it is not high compared with the average growth rate of 16.4 percent during the 35 years of reform and opening up, it is still twice the global growth rate.

Facing a slow recovery in the world economy and low growth rate of world demand, it is hard to maintain that rate. In the same year, China was in first place in world trade, with a volume of $4.16 trillion, which is a new milestone in the history of China’s foreign trade. Nevertheless, how far is it between a large trading country and a strong trading country? This is a question worth asking.

Role of a large trading nation and its influence

China made new breakthroughs in foreign trade with stable growth rates much higher than the world average. In 1990, the trade volume of China ranked 15th in the world, and it jumped to 7th in 2000, and was first in 2013. This speed impressed the whole world. So what does the fast growth of foreign trade mean to China, and to the world?

In terms of exports, the volume of $2.2 trillion in 2013 equals 24.1 percent of the GDP, and exports contributed an average of 18 percent to economic growth in recent years. According to estimates from the Ministry of Commerce, China’s foreign trade has directly or indirectly created 180 billion jobs, most of which were for rural workers, whose income and lives were improved significantly.

We also made progress in modern management skills, manufacturing technologies and international competitiveness through exports. On the other hand, with products made in China, the world is ensured a supply of basic consumer goods, production materials and equipment, as well as cheap and diversified quality goods. At present, the export proportion of China to the world has increased to 12 percent, from 1 percent at the beginning of reform and opening up.

As for imports, China bought goods worth $1.95 trillion from the rest of the world in 2013, equivalent to 19.6 percent of the GDP. Imports of many important mineral resources and bulk commodities meet the demand of domestic consumption and production, while it also provided huge market and growth opportunity for other nations or regions. From 2001 to 2013, China’s imports totaled $13 trillion, and China’s import growth contributed 13 percent to the newly increased demand in world trade.

Foreign trade benefits more than imports and exports. The restructuring of imported and exported goods accelerated the upgrading of China’s industrial structure, and created conditions to improve the global industrial chain and cross-border labor division.

The lasting trade surplus brought more foreign-exchange reserves, enhanced our ability for international payment and risks resistance, and allowed China to play a role in helping countries that experience a debt crisis or underdeveloped countries, and in stabilizing the world financial market.

The efforts made in the trade system reform and improvement in related policies, while facilitating trade and enhancing transaction efficiency, made great contributions to internationalization of our economy and propelling reform and market building, and provided valuable experience for many developing countries in the world.

Major manifestations of “more large than strong”

Although China is undoubtedly a large trading nation, it is not a strong one. The major gaps and problems are shown in the following aspects:

First, as China remains at the low-middle end of the global value chain, our exports lack core competitiveness. Processing trade still takes up one-third of exports. Our core parts and key technologies and equipment mainly depend on imports, while domestic production still centers on processing and assembling, with limited added value and low corporate profits.

Second, local companies lack world-class technologies and brands, losing export pricing power to multinational companies, and high-tech products depend much on foreign-funded companies. Though our export structure is much improved and high-tech products account for a growing proportion, the export proportion of electromechanical products and high-tech products, for example, reached 57.3 percent and 29.9 percent, respectively, and the proportion made by foreign-funded companies was 61.2 percent and 73 percent, respectively.

Third, trade in service is underdeveloped, with low corporate competitiveness. In 2013, China’s import and export in service totaled $539.64 billion, only 47.4 percent of the US, and the export was $210.59 billion, less than a third of the US. Our deficit in service trade reached $118.46 billion, making China one of the countries with the largest deficits in service trade. By contrast, the U.S. saw a surplus of $231.63 billion in service trade, equal to our surplus in trade in goods. In terms of export in technology- or knowledge-intensive and high-end service sectors, China is small in scale and weak in competitiveness.

Fourth, traditional advantages are challenged as uncertainty in the external environment is increasing and pressure from international competition is growing. First, with the rising cost of labor and the soaring price of water, electricity and industrial land, our advantage in factor costs are shrinking. Second, fast growth and high proportion of export of many energy-consuming, high-emission and resource-based products increased pressure on resources and the environment, so they are faced with rough adjustment and restrictions. Third, the lasting imbalance of payment in goods trade raised domestic liquidity and prices, and resulted in trade protectionism, which led to growing trade frictions against China. Fourth, the appreciation of Renminbi, the “reindustrialization” of developed countries and the appearance of other emerging economies’ cost advantage, all these factors have turned international competition more fierce.

Important measures to foster new competitiveness

The Third Plenary Session of the 18th CPC Central Committee adopted the Decision on Major Issues Concerning Comprehensively Deepening Reforms, which specified the strategy of “building new mechanism for an open economy”. Furthermore, the government work report made raising opening up to a higher level one of the key works in 2014, and put forward specific strategic plans for building new international strength.

First, we will open China’s market wider to the outside world in all areas. We will continue to utilize foreign investment actively and efficiently, further lift restrictions on access to investment, open up more service sectors to foreign capital, and create a transparent, stable and predictable playing field where domestic and foreign enterprises can compete on fair terms, to ensure that China remains a top choice for foreign investment. We will advance building the China (Shanghai) Pilot Free Trade Zone to explore new paths and new models for reform and opening up. We will develop a new pattern of comprehensive opening up where China's coastal, inland and border areas support each other’s development.

Second, we will make it a strategic priority to upgrade exports and promote balanced growth in foreign trade. Total imports and exports are projected to grow around 7.5 percent this year. To meet this goal, the government will keep export policies stable and improve them, accelerate reform to facilitate customs clearance, and improve policies that encourage cross-border e-commerce on the basis of pilot projects.

Third, we will increase China's competitiveness through expanding overseas business. We will carry out reform in management of outbound investment, and improve financial, legal, consular and other services to facilitate, guarantee and support “going global”. On the other hand, we will make use of regional international platforms such as the Silk Road economic belt, the 21st century maritime Silk Road, the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor, to expand more space for cooperation.

Fourth, we will engage in bilateral, multilateral and regional opening up and cooperation in a coordinated way. We will strive to make progress in negotiations on agreements concerning service trade, government procurement and information technology, and speed up negotiations on new areas such as environmental protection and e-commerce. We will actively participate in developing high-standard free trade areas; continue negotiations on investment agreements with the United States and the European Union, and accelerate free trade area negotiations with the Republic of Korea, Australia, and the Gulf Cooperation Council. We will continue to promote trade and investment liberalization and facilitation to enhance our soft power in opening up. Prospects for a strong trading nation.

History has shows that China’s open economy is entering a track in accordance with both world development trend and its own conditions. This year, though there are many uncertainties in the international environment, such as no signs of a noticeable rebound in the world economy, great downward pressure in the domestic economy, and weak foundation to keep foreign trade growing, there are still many favorable conditions, such as stabilizing prices, more efforts to alleviate the burdens of delegating power to lower-level governments and higher efficiency due to trade facilitation and liberalization.

In the medium-long term, great progress will be made in building a new mechanism for an open economy, and the dividends of reform and corporate vitality will be fully regained. Transformation of a trade development pattern, opening up of the service sector, progress in outsourcing services and improvement in original brands and innovation, all these driving forces will start to take effect.

The advantage of a country with abundant human resources, the building of international pathways such as the Silk Road economic belt and the 21st century maritime Silk Road, mutually beneficial economic cooperating networks and fast-growing bilateral and multilateral investment liberalization arrangement, all these will considerably accelerate fostering our new advantage in international competition and cooperation, and infuse fresh vitality into realizing a sustainable and healthy development of China’s foreign trade.

Authors: Zhao Jinping and Luo Yuze, research fellows of the Development Research Center of the State Council

Source: People's Daily, March 2014