Hone competitive edge

China should focus on cultivating its own brands and technology to gain the upper hand in international trade

Due to the complicated and changeable global economic situation and the contraction in external demand, China's top economic planner has lowered its expectations for the growth in foreign trade this year to 8 percent. There is little possibility of China enjoying expanded external demand given the poor prospects for global economic growth.

The International Monetary Fund has forecast the global economy will grow by 3.6 percent in 2013, an increase of only 0.3 percent on last year, and actual demand will grow by just 1.3 percent in developed countries, a meager 0.2 percent higher than the previous year.

Following the quantitative easing policies adopted by the Unites States, Japan and some European countries since 2012, emerging economies such as Brazil, India and the Republic of Korea have also rushed to cut interest rates as a way of spurring their economic development. The worldwide monetary loosening has heightened exchange rate fluctuations among currencies, accelerated transborder capital flows and added instabilities to the international financial order. All of which have increased the uncertainties for China's foreign trade.

China's vanishing demographic dividend also means an era of slower growth and lower profits. According to the National Bureau of Statistics, China's working-age population declined by 3.45 million last year, giving credence to the argument that China is approaching the Lewis Turning Point. Financing difficulties, high taxes and the high prices of raw materials have also dented profit margins. Surveys indicate that many domestic enterprises are unable to make a profit above 5 percent even if they have full order books. In Wenzhou, a booming coastal city in eastern Zhejiang province, the export-oriented clothing sector netted a profit of around 5 percent in 2012, but it is expected to decline to 3 percent in 2013 due to rising labor costs, possibly more depending on how much the yuan appreciates and how high inflation goes.

The decelerating exodus of global manufacturing out of China in the past few years has also weakened its capability to maintain its manufacturing boom. Due to its lower-cost advantage and enormous market potential, China was once considered to be a pivotal base by transnational manufacturers, which bolstered its manufacturing sector. However, this has changed, and transnational companies have increased their efforts to adjust and optimize their industrial structures and change their industrial movement to better deal with the fiercer economic competition resulting from the global economic downturn, as indicated by Nike and Adidas moving workshops from China to lower-cost Myanmar and Vietnam.

That China has become the world's largest exporter is inseparable from the reform and opening-up initiative it adopted three decades ago. Now its demographic and globalization-induced dividends are subsiding, the country's new leaders have stressed the need to release the dividends of a new round of reforms in a bid to elevate the country's economy to a new level. The adoption of a series of pro-export and import policies in this context will boost the development of the country's foreign trade. For example, a preferential tariff on imported goods adopted by the Ministry of Finance, which took effect on Jan 1, will play a positive role in increasing the country's imports and help meet domestic consumer demand.

China's efforts to wean itself away from quantity-based growth to quality-based development means the country needs to adopt a new foreign trade development strategy.

China should optimize its foreign trade structure and increase its support of the development of high-tech and higher-quality products. Statistics indicate that exports of China's primary products declined 0.4 percent in 2012, but exports of brand products steadily increased. This means China should focus more on the cultivation of its own brands and technology to improve its export advantages and gain an upper hand in international trade.

Efforts should be made to accelerate the transformation and upgrading of China's processing trade. Domestic manufacturers need to increase their input into research and invest in talent to improve the competitive edge of their products.

The government should also improve its trade assistance system and more actively involve itself in domestic enterprises' handling of an increasing number of anti-dumping cases filed by foreign countries so as to create a healthy and stable external foreign trade environment.

Zhao Xiao is a professor with the School of Economics and Management, Beijing University of Science and Technology and Teng Qizun is a member of the university's Research Section on China's Economy.

(China Daily 03/26/2013 page8)