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Understanding China's trade surplus

China's trade surplus reached 22.45 billion US dollars this May, 5.47 billion dollars more than in April, and next only to February in value. In the first five months, trade surplus accumulated to 85.72 billion dollars, up 83.1 percent year on year.

From the latter half of this year, experts predict that the growth in trade surplus may slow down. However, elements contributing to China's long-term trade surplus will continue to exist and the entire year's surplus still remain relatively high.  

Growth of trade surplus, an outcome of international industry shift 

The growth in China's trade surplus is an outcome of international industry shift, said Wang Xinpei, spokesman of the Ministry of Commerce. Due to factors including the nation's economic development stage, status in the international labor division, and economic structure, it is quite impossible that trade surplus will dwindle in the short term. It might exist for a long period, along with industrialization process, making the balance of imports exports a long-term task.

According to a report, released on May 29th, by the National Development and Reform Commission, as international industries sped up the process of economic globalization, China's trade surplus with America and Europe has largely replaced that of East Asia with the two regions. Meanwhile, international market demands remain robust. According to the latest prediction by the International Monetary Fund, the world economic growth rate in 2007 would approach 5 percent and the world trade growth would hit 8.9 percent- both noticeably better than in previous years.

Meanwhile, back home, rich labor resources, strong coordination between main and related industries, and low factor price has also fueled the ever-enlarging trade surplus. In addition, after joining the Öffnet einen externen Link in einem neuen FensterWorld Trade Organization, China has slashed tariffs and removed various import non-tariff barriers. The export environment has also improved, creating favorable conditions for the use of foreign capital and overseas investment. The rapidly expanding manufacturing capacity has begun its output, which has increased exports significantly.

As a matter of fact, a trade surplus is unavoidable during the process of industrialization. The United States, Germany and Japan all witnessed large-scale trade surpluses in their course of development, which continued for quite a long period of time.  

Accelerate the transformation of foreign trade growth mode-the key to reducing the surplus 

However, what cannot be neglected are the contradictions and problems resulting from the excessive growth in the trade surplus: two much liquidity will affect the national economy as a whole, and undermine the stability of macro-economy; resource waste and environmental pollution are noticeable. Friction within international trade has also worsened. Currently, China is the world's primary trade surplus source, giving the United States an excuse to encourage RMB revaluation, as well as for US anti-dumping and anti-subsidy measures.

The Chinese government, paying close attention to the issue, has taken effective steps to reduce the surplus.

The Öffnet einen externen Link in einem neuen FensterMinistry of Finance announced on June 18th that as of July 1st, China would again adjust export tax rebate rates on some commodities. The latest adjustment involves 2,831 commodities, affecting about 37 percent of all customs goods. Of these commodities, tax rebates are cancelled for 553 commodities with high energy consumption, high pollution and resource consumption-including cement, dyestuff, metal carbides, activated carbon products and leather. Rebate rates are cut for 2,268 commodities prone to trade frictions such as garments, shoes and caps, clothing chests and bags, and toys. Since 2004, China has adjusted its export tax policy for iron and steel products six consecutive times. Now, export tax rebates for most iron and steel products cease to exist, and export tariffs will be imposed on more than eighty such products.

While managing the export structure, we should also rely on expanding domestic demand and enlarging imports in our efforts to reduce the surplus.

By now, the Ministry of Commerce has cancelled import licenses for more than 1,600 commodities, and will spell out measures to encourage hi-tech imports, such as mechanical and electrical products. Large holding enterprises are encouraged to purchase overseas and privately run companies to expand imports.

China has always pursued an international payment balance as a major goal of its macro-regulation, and never deliberately sought out a trade surplus, said Chong Quan, Assistant Minister of Commerce. The Chinese government is making efforts to re-address the imbalance in imports and exports, he said, and China also hopes relevant countries can remove unreasonable barriers on high-tech exports to China, so as to create conditions for more imports from China.

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