China’s Foreign Trade Development Environment in 2012

Mar 19, 2012  |  by
MOFCOM released, on November 11, Report on Chinese Foreign Trade Development (Autumn 2011). It is a review on China’s foreign trade in the first three quarters, and a projection for the whole year and an outlook in 2012. According to the report, the main risks of China’s foreign trade development in 2012 could come from the increasingly complex external environment. The slowdown in world economic recovery and increased downside risks will bring a number of risks and challenges to the steady development of China's foreign trade. Domestically, to maintain steady development of China's foreign trade has both basic and favorable conditions and is faced with rising cost pressure. Considering various factors, China's foreign trade in 2012 will keep growing, but the growth rate may fall.

There is certain foundation and advantages for China’s foreign trade to maintain steady development in 2012, however, more and more uncertain and unsteady factors are restricting the steady development of foreign trade. The main risks of China’s foreign trade development in 2012 come from the increasingly complex external environment.

Externally, the world economy is expected to continue the recovery trend, but the downside risks will increase. From the current situation, as long as there are no major external shocks, re-emergence of crisis or “another recession” is a small probability event. However, three years have past since the breakthrough of the international financial crisis, and its deep-seated influence has been coming out constantly, which highlights the long-term, arduous and complex recovery. Recently, International Monetary Fund has lowered the world’s economic growth expectation in 2012 to 4.0% from 4.5%.
 
The risks and challenges that the world economy has to face in 2012 are as follows:
 
Firstly, European sovereign debt risks increase. Currently, the European sovereign debt risks are spreading to Italy, Spain and other core countries from the peripheral nations such as Greece, and from the field of public finance to the banking system, thus the market confidence is extremely fragile, leading to continuous oscillation on large scale. The intertwined debt chains of Member States as well as the closely economic ties increase the likelihood of deepened crisis and the dragging down of banking system as well as the real economy. As part of the repayment of sovereign debt have moved into the peak, if the effective relief measures is not timely introduced, new major shocks will be exerted to the world economic and financial system once the concentrated outbreak of the European banking industry risks.
 
Secondly, the world economic recovery is still insufficient. Currently the world’s economic recovery power has seen stronger than the beginning of the international financial crisis, but the overall pattern is that the policy supporting effect is weakened, the traditional engine of growth is still weak, and the new growth momentum has not yet formed. The major developed economies are suffering a high rate of unemployment; the real estate market is encountering continued downturn; demand for consumption and investment is weak; the new growth point represented by technology and innovation has not formed. Since the fiscal and monetary policy has very limited space, fiscal restraint policy for the debt problems will undermine economic growth, and the “liquidity trap” will restrict the effectiveness of expansionary monetary policy. Emerging economies are to face dual pressures of rising inflation and setback of economic growth.

Thirdly, it is difficult to alleviate the global inflationary pressures in a short time. After the international financial crisis, the major economies one after another have adopted an ultra-loose monetary policy, and the global liquidity suffered serious surplus, continuously increasing global inflationary pressures. Since 2011, the prices in the emerging market and developing countries have suffered a “high fever”, and the level of inflation in developed economies as a whole continued to rise. In September, the consumer price index of Vietnam, India, and Brazil rose 22.4%, 9.7%, and 7.3% respectively; 3.9% and 5.2% in the United States and the United Kingdom respectively.
 
Currently, the major developed countries in general strengthen the loose monetary policy. Britain has launched a new round of quantitative easing monetary policy; European central bank has to keep rate low and restart the long-term refinancing operations; the United States announced that it would keep interest rates low to mid-2013, and launched 400 billion USD size of the distortion operation. The inflation monetary policy in the emerging countries such as Turkey and Brazil is undergoing changes from curbing inflation to promoting growth. In the coming period, the risks of the disorderly flow of large-scale international capital will increase, and the commodity market may be encountered frequent oscillation by a wide margin, which will make the global inflation situation not optimistic. 
 
Fourthly, there are more and more interfering of non-economic factors. The undispersed haze of international financial crisis may further affect the social stability, and the problems of inflation, unemployment, etc. and the increased polarization overlapped, which will lead to political instability, intensified social conflicts, might exert unexpected impact on the world economy.
 
Slowdown in world economic recovery and increasing downside risks are bound to bring a number of risks and challenges to the stable development of China’s foreign trade.
 
Firstly, the international market demand is weak. The external demand next year is likely to continue shrinking owing to the slowdown in the pace of world economic recovery. In the United States, consumers are pessimistic about the economic outlook facing the weak economic recovery, stubborn high unemployment rate, and real estate market downturn. U.S. consumer confidence index fell to 45.4 in September 2011 from around 70 in the beginning of the year. The sovereign debt crisis forced the EU Member States to tighten fiscal, which not only restricts economic recovery but also affects the welfare spending and weakens consumer spending will. The EU consumer confidence index in September of 2011 is negative 19.1, falling to 25-month low. Slowdown in economic growth in emerging economies will also curb the growth in demand, restricting Chinese enterprises to further explore new markets. During the first nine months of 2011, import growth rate of Brazil fell 19.7 percentage points over the same period of the previous year.
 
Secondly, more difficulties of financing increase risk of shrinking foreign demand. Implicated by sovereign debt crisis, European banking system is put into a quandary, and the banks have to shrink their business scope and reduce the tolerance degree of risks, deeply influencing trade financing and increasing the risk of shrinking foreign demand. Banks of the U.S. are far from the shadow of the financial crisis, and the economic slowdown reduced demand for loans. Low interest rates reduce the return on investment; market volatility increases the investment risk; regulation strengthening drives up operating costs. Financial system instability will be a new variable that affects the future development of international trade.
 
Thirdly, economic and trade frictions will be more severe. Although the numbers of China’s trade remedy cases and case values have decreased since 2011, the friction strength has not weakened with the abuse of trade remedy measures such as anti-dumping and countervailing as well as more policy and institutional friction. In some developed countries, economic recession is overlapped with the electoral political cycle, therefore, economic issues present apparent political tendency along with the resurgence of trade protectionism against China. Various “China’s responsibility” come out one after another, requiring China to bear international responsibility beyond its capacity. 
 
Fourthly, non-economic factors may bring unexpected impact to the development of China’s foreign trade. The influence of Middle East turmoil to Chinese enterprises’ exploration of Middle East market cannot be ignored. In recent years, major natural disasters have been frequent in the world, not eliminating major natural disasters in individual country, thus affecting its bilateral trade with China. In addition, the direction of “Occupation of Wall Street” is still uncertain, and owing to economic globalization, the movement pays close attention to China’s economy and foreign trade.
 
Domestically, to maintain the steady development of China’s foreign trade not only have a certain foundation and favorable conditions, but also face such pressures as rising costs.
 
China's current economic development is still at an important period of strategic opportunities; favorable conditions of various aspects, the inherent advantages and long-term good trend have not changed; the economy will continue to maintain stable and rapid growth. The above factors will form a strong support to China’s foreign trade development.  Meanwhile, the comparative advantage of China's foreign trade tradition still exists while a new competitive advantage is on the way; the strategy of market diversification is steadily pushed forward; enterprises are growing in the fierce competition, and especially after the temper of the international financial crisis, the capacity of warding off risks, expanding markets and innovating have been significantly enhanced.
 
However, the superimposing of long-term conflicts that restrict foreign trade development and short-term problems at home significantly increased the pressure on the operation of foreign trade enterprises. Rising of production operating costs such as the wages of labor, raw material prices, the RMB exchange rate, loan interest, and plant rental, weakened the price advantage of foreign trade enterprises to some extent, squeezing corporate profits. Rising costs and falling profits caused not daring to accept orders or unwilling to answer, increasing the difficulty of structural adjustment. Export profits index of key enterprises in contact with MOFCOM fell to 101.2 in September of last year from the April’s 106.9. The decrease in profits resulted in inadequate investment in enterprise technology, R & D, and brands.
 
Considering various factors, in 2012, China's foreign trade will continue to maintain growth, but the growth rate may drop slightly than that in 2011. Under the influence of such factors as increasing domestic demand for energy resources, expanding the import policy support and fluctuated international commodity prices, the growth in imports is expected to continue to be faster than exports, and the trade balance will be further improved.
 
Confronted with complex and challenging environment both at home and abroad, China will keep its foreign trade policy steady and constant, strive to overcome the adverse impact by external environment and maintain stable export growth; China would attach great importance structure of import and export, market structure and regional structure, to accelerate the transformation of foreign trade development, and to increase the capacity for sustainable development of foreign trade; And should firmly expand imports, create more favorable conditions for the enterprises to expand imports, and continually contribute to the development of global trade balance.
 

2024.12   

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