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We had a look at a recent article from the People’s Daily Online (June 27, 2006) entitled "Four major obstacles to Chinese foreign trade" and we’re offering a counterpoint to some of the pessimistic views expressed about the possible slowing of China’s export trade.
 

Firstly, China should deal with pressure from international markets that are gradually becoming saturated. In 2005, the volume of Chinese exports ranked third in the world, making up 7.3 per cent of the world’s total volume, 3.4 percentage points up from 2000. In 2005, ranked among the world’s top ten countries in terms of export volume, China is growing much faster than the other nine countries. The growth rate of Chinese exports exceeds the world’s average rate of 13 per cent. As a result, the growth of Chinese exports is increasingly subjected to international markets.

That is true but as far as anyone can tell, Western markets still have a lot of capacity and demand for cheap Chinese imports. And then there’s the ongoing growth of consumer markets in developing economies around the world, which are also going to increase the demand for China’s mass-produced products.

Secondly, the cost of Chinese exports is increasing, partly because of the higher cost of labor and environmental protection. Cheap labor is the foundation of the Chinese economy. However, the worker shortage apparent in some areas of China indicates that it is inappropriate to sacrifice workers’ welfare for the sake of low export prices and the Chinese government should change the situation.

There isn’t really a worker shortage in China. The manufacturing industry and China’s employment market as a whole are getting more and more efficient as the nation’s economy continues to develop. Labor costs inevitably increase over time, but China still has a massive workforce of hardworking and often well qualified young people from rural backgrounds, who are willing to work for wages that are some of the lowest in the world. The costs of living in China are increasing for middle classes in urban areas, but in the closed-off world of factory workers who are saving money to send home to their family in the countryside, the salaries of today will continue to be adequate for some time without drastic increases.

In recent years, China has tightened restrictions on the export of products that consume a lot of energy, create a lot of pollution or use a lot of resources in their production. Limited resources and the environment have become major obstacles to the growth of Chinese exports.

There are both good examples and counterexamples of this generalisation. But overall, if China cannot produce goods competitively, of course the production will be shifted somewhere cheaper if possible. In some industries this will of course occur, but China’s economy will continue to grow on the strength of new export niches and high-tech development, as well as current investment in Chinese manufacturing being bet on by large multinationals. On a realistic note, damage to the environment has yet to become a serious enough issue in Chinese minds to the extent of limiting any possible business growth.

Thirdly, increasing international trade protection has caused China to stumble into difficult territory. China has been involved in the world’s largest number of anti-dumping cases in recent years.

Most of the time this is just because Chinese products are so incredibly cheap, not because there is some vast conspiracy to dump products on foreign markets and suppress overseas competitors. The anti-dumping cases are usually examples of other countries not having well-developed plans for coping with the increasing availability of cheap imports in the era of the WTO, and shouldn’t be seen as China being evil in some way.

Finally, the trade imbalance between China and other countries is getting worse. As the Renminbi appreciates, Chinese enterprises will face greater exchange risks in import-export trade. Increasing pressures from the appreciating Renminbi will create new requirements and challenges for Chinese enterprises engaged in import-export trade.

It is true the RMB will continue to strengthen, but this is being shrewdly managed by Beijing, and is unlikely to have a detrimental effect on Chinese exports within the next five years. Beyond that, Chinese enterprises may indeed face "challenges" but I don’t think anyone is in any doubt that they will be well placed to deal with these challenges, adapt, and continue to impress the world’s economists.

Article by Rose Li,
Chinavasion Chinese Electronics Online Shop
With thanks to www.chinatoday.com for the original People’s Daily article quotes.