A view on China's foreign trade and economic relations 1st half 2005 (I)

A good scenario has been seen in China's foreign trade and international economic cooperation over the first six months of this year, as a result of efforts on exploiting the "two markets" (domestic and overseas), improving bilateral and multi-lateral trade relations, and handling trade disputes properly.

A good scenario

Exports grew rapidly whilst imports slowed down during the 1st half. The 32.7 percent exports increase over the same period of the previous year reflected a sustained upturn of exports for the latest 3 years. A favorable external environment, embedded in the world's economic growth and robust international market demand combined the internal incentives represented by central government's subsidies for areas heavily burdened with export tax rebates.

A series of measures to transform the export mix have been taken and worked, including a push-start to exports of ships, large equipment and outfit, auto parts and regional airplanes. Exports of mechanical and electronic products and hi-tech products jumped 33 percent and 32.4 percent respectively. Conversely, tax rebates were cut down or removed on products featured with heavy energy consumption, heavy pollution and resource-related, such as billet, rolled steel and aluminum not forged or rolled. Processing trade was even banned for 7 categories, such as iron ore and the policy of "production replacing imports" in the steel sector was also halted. Therefore, growth of imports of all these products lagged behind that of the same period of last year by 29 percentage points and stood well below the exports growth by 18.7 percentage points.

Imports in the general trade, more affected by investment slowdown, only moved up 7.5 percent and the share in total imports was down by 2.5 percentage points. Less orders were placed for products which were closely depended on the investment climate, such as billet, rolled steel, refined oil and plastic in primary form. Imports were also affected by expanded production capacity, excessive imports last year, downward equipment imports by foreign investors, and rising expectation for RMB revaluation.

The trade surplus soared to 39.6 billion USD for the first half year which was higher than last year's total. Favorable balance inflated robustly in trade with the US and Europe.

The actual absorption of foreign capital has been down and contracted foreign investment has been up since the beginning of the year. Manufacturing remained the favorite in the eyes of foreign investors, which actually used 20.3 billion USD of foreign capital, down by 0.8 percent year on year and taking up 71.1 percent of the total amount of foreign capital influx used. The actual use of foreign investment rose 20 percent in chemical raw materials and chemical manufacturing whilst that of electronic equipment manufacturing jumped 9.2 percent.

The wholesale and retailing sector used more foreign capital by 0.9 percent compared with the same period of last year, contrasting with the 4.7 percent decline in the housing sector.

In addition, geographical distribution of foreign investment varied distinctly. 89.9 percent of foreign investment, or 25.7 billion USD went to the east, compared with the 1.9 billion USD to the central areas, down by 31.4 percent, and the 900 million USD to the west, up 28.4 percent. In the northeast where the old industrial base was struggling for revival, the actual use of foreign investment shrank 56.6 percent. The old 15 EU members pumped more in China by 18.3 percent while the US input less by 28.9 percent.

The "Go global" strategy continued making progress. Chinese businesses launched more mergers and acquisitions and sought more investment opportunities on the overseas market. A circular on encouraging the information industry to tap the overseas market has been issued and a guiding catalogue for investing in specific countries has also been released. China made nearly 2 billion USD non-financial direct investment outside the country. 474 businesses built their presence on the overseas market under the approval and registration by the Ministry of Commerce, a jump of 44.5 percent. There were more large projects, as well as more mergers and acquisitions. More attention was given to those large projects to make sure these contracts are fulfilled. 7 big deals were inked during the 2nd China-Russia Investment Promotion Fair. Lenovo's acquisition of IBM PC business was handled properly.

Exploitation of overseas resources was pushed forward. The contracted projects for the first half of the year valued 8.56 billion USD and overseas labor cooperation brought 2 billion USD turnover, increasing 30.7 percent and 26.1 percent respectively. By the end of June 523,000 laborers had worked outside China.

Relations with trading partners were improving. More than 7,000 kinds of products enjoyed lower tariffs on the trade between China and ASEAN nations. Two rounds of free trade talks completed with the Golf Cooperation Council and Chile. Three rounds completed with New Zealand. Talks on free trade agreement were officially launched with Australia and Pakistan.

Planning of China-India and China-ROK trade and economic cooperation has been done. Zero-tariffs were granted to some imports from 25 least developed countries in Africa. The first China-Caribbean Economic and Trade Cooperation Forum was held. 18 kinds of Taiwan fruits were allowed into the mainland market, with 15 free from tariffs.

Achievements were made in the integration of textile trade. China and EU finally reached a consensus on the textile trade, which secured the bilateral strategic partnership and won more room and stable environment for Chinese textile exporters. Major trade row cases were dealt with more seriously. 25 businesses finally won the market economy status in the EU MMF fiber cloth case. 5 got zero tariffs in the EU steel cast case. Involvement in the response to and negotiations with India and the US for silk and art canvas helped settlement of the disputes. Aggressive efforts were made of the issue of China's market economy status. 7 countries, such as Australia, recognized China as a market economy during the first six months. And China-US and China-EU consultation on this issue proceeded at the technical level.