Overseas trade unlikely to grow in short term
- By Yi Xianrong
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E-mail China.org.cn, September 30, 2012
The consecutive plummeting of the PPI has resulted from this industrial surplus. Under such circumstances, imports were subsequently reduced due to stalled investments in fixed assets, which hindered the growth of the overall economy. The surge in housing prices also lead to inevitable increases in business costs, engendered by the increasing prices of land purchased for manufacturing bases and office rentals.
In addition, frenetic price increases in consumer goods have also triggered demands for salary increases from the labor force. Gradually, as wages rise, China is losing its competitive edge in exports.
The exodus of processing enterprises for overseas trade, like the manufacturing base of Adidas Group in China, and the deteriorating impasse that has afflicted loads of contracted processing enterprises in Guangdong, Jiangsu and Zhejiang provinces, is much more likely caused by changes in the domestic economic environment. Ceaseless price hikes, in particular, have affected overall business costs more than external crises have.
The descending growth of the domestic real economy amid the current industrial surplus and consecutive declining PPI has also affected the performance of companies listed on China’s stock markets. About 6.1 percent of Chinese listed stocks reported losses in the first half this year.
The US’s QE3 will usher in a structural change in the international financial market. The massive influx of the US dollars will not only flow from its national monetary system to the domestic capital market. Huge liquidity of hot money is also likely to infuse the overseas capital market (in Hong Kong, and then in the Chinese mainland) with high risk.
This massive influx of foreign capital will probably push the appreciation of the Chinese yuan (RMB), elevating the price of mainland assets to a new high. Meanwhile, the depreciation of the US dollar, as one of the major currencies in international settlements, will surely result in a price hike of the bulk commodities in the international market and consequently yield a new round of imbalances in China’s overseas trade.
In conclusion, when analyzing the slowing growth of China’s overseas trade, we should explore the deep structural problems of China’s domestic economy. The slide in imports should be attributed to the overinflated real estate market and its related industries.
After overheating its economy for the past few years, China is now potentially facing dramatic structural changes. A top priority in tackling the current challenge is to cool the housing market in order to restore a certain degree of buying power for individuals. Only by doing this can the market eliminate its severe glut and restore trade equilibrium.
The Chinese government, therefore, should keep a close watch on the aftermath effects of the QE3, which will substantially influence China’s overseas trading, and plan an agenda to prepare for possible consequences.
The author is a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences.
(This post was first published in Chinese, and translated by Wu Jin.)
Opinion articles reflect the views of their authors, not necessarily, those of China.org.cn.
