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Economists: Year-long trade deficit possible
By Jia Hepeng (China Business Weekly )
Updated: 2004-05-23 09:38
China is very likely to have a year-long trade deficit this year, the first
since 1993.
While economists say that the possible trade deficit will
mostly be caused by temporary factors, they recommend the government and
industry players adopt measures to avoid the impact of surging imports.
Customs statistics released last week showed that China posted its third
monthly trade deficit in a row in March. The deficit totalled US$540 million
last month. For the first quarter, the deficit totalled US$8.43 billion.
China's exports were 42.9 per cent higher in March, reaching US$45.85
billion, while imports rose 42.8 per cent to hit US$46.39 billion.
Exports in the first three months stood at US$115.7 billion, up 34.1 per
cent from a year earlier, while imports were US$124.1 billion, up 42.3 per
cent.
In the first quarter of 2003, China also had a deficit of US$1
billion, but this time, things are different.
"The trend of slower export
growth than import is expected to continue in the second quarter, causing more
deficits, and the situation will improve in the second half of this year. The
annual figure is very likely to be a slight trade deficit," said Chen Fengying,
a senior economist with the Institute of Contemporary International
Relations.
Last year, China realized a trade surplus of US$25.53
billion.
The changed tax return policies for exports that started this
year is a major reason for the reduction in the growth rate of China's exports,
Chen told China Business Weekly.
Last October, the government decided to
reduce the average tax return rate for exports from 15 per cent to 12 per cent.
The policy adjustment pushed exporters to sell their goods overseas in the
fourth quarter last year to enjoy the higher tax return rate.
On the
other hand, China's average import tariff rate was slashed from 11.3 per cent
last year to 10.4 per cent this year, promoting more imports.
Meanwhile,
the strong domestic demand for raw material and machinery equipment resulting
from heated fixed asset investment greatly increased China's imports, said Zhang
Yansheng, director of the Institute of Foreign Economies under the National
Development and Reform Commission (NDRC).
In the first two months of this
year, China's fixed asset investment rocketed by more than 50 per cent. The
investment growth rate for the first quarter is expected to surpass 40 per
cent.
Imports of iron ore, crude oil, soybean and edible oil surged
because of huge industrial demand. According to Li Yushi, deputy director of the
Chinese Academy of International Trade and Economic Co-operation, the imports of
raw material accounted for 80 per cent of the total imports in the first
quarter's US$124.1 billion.
Mainly as a result of surging Chinese demand,
the price of raw material in the international market has rapidly risen since
late last year.
The price index of raw material in the international
market rose 17.2 per cent in the last quarter of 2003 , and the price hike
continued this year.
Zhang said that in the latter half of this year,
policies to curb economic overheating will gradually take effect, reducing the
demand on raw material and machinery equipment.
Last month, the People's
Bank of China, the nation's central bank, raised the bank reserve rate from 7
per cent to 7.5 per cent to curb commercial banks lending money to heavily
invested sectors.
The powerful NDRC also introduced some punitive
measures to warn local leaders not to invest excessively.
But the effect
of the policies might not totally offset the huge demand for imported material
in the current economic boom, Zhang told China Business Weekly.
On the
other hand, foreign direct investment (FDI), which has been an engine to promote
Chinese exports, has increased slowly. This also possibly reduced the export
growth rate, experts believe.
China drew US$53.5 billion in FDI in 2003,
up just 1.4 per cent from the previous year, although that is due in part to the
SARS (severe acute respiratory syndrome) outbreak that led to the delay or
cancellation of some contract signing.
As China has huge foreign
reserves and is short of some crucial raw materials such as oil, its trade
deficit is not a big problem in the short term, Li said.
The reducing
trade surplus may even benefit the country as this can weaken international
pressure on China to re-evaluate its currency - the renminbi, economists
suggest.
But in the long term, continued trade deficits can hurt the
Chinese economy which is mainly pushed by exports and investment.
An immediate problem of China's rising imports is that the huge Chinese
demand often spurs international prices of raw material to rise rapidly, Zhang
said.
This is mainly because international prices of raw material are
manipulated by traders in the developed countries, who are very sensitive to
China's rising imports and would not hesitate to increase the price of their
commodities.
Economists say a measure to solve the problem is to avoid
concentrated purchases of raw materials. Domestic buyers should buy oil, steel
or coal at different times, in different markets and from different countries.
More Chinese companies should be encouraged to invest in mines and oil fields in
other countries, especially in Africa where resources exploration has not been
totally controlled by giant international mining firms.
Zhang also
suggested China better utilize the international futures market to buy goods
like oil or soybean when prices are cheaper. It should also quicken the process
of establishing energy reserves to avoid speculative price fluctuation in the
international market.
"As a
whole, there is oversupply of raw material in the international market. As a big
country and major importer, China should decide the price instead of passively
accepting it," said Zhang.
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