Expanding imports the best way to balance trade
Data released by China’s General Administration of Customs on March 8th showed that the export growth quickened at the beginning of the year and the trade surplus expanded accordingly. In the first two months of this year, China’s yuandenominated exports reached a value of 2.44 trillion yuan ($386.2 billion), an increase of 18 percent year-on-year, which is also the highest cumulative growth rate in four years.
Exports are a vital engine of China’s economic growth. Even in the face of pressure from trade conflicts, China will not actively restrict exports to achieve a trade balance – instead, expanding imports will become more important.
The newly released government work report said the nation “will actively expand imports.” But there may also be various support policies and measures that could be deployed in advance.
First, imports of advanced technologies, instruments and equipment could be encouraged. Expanding imports in this area is in line with domestic industrial upgrading and would also be conducive for balanced trade development.
In addition, the government work report said “the ceiling for deductible business purchases of instruments and equipment will be significantly raised.” This measure, together with encouraging advanced technologies and equipment, will increase the enthusiasm among enterprises for importing advanced equipment from abroad. However, it is still unlikely that the US will relax its controls on exports of hightech products to China. However, we may see the loosening of similar policies by European countries and Japan.
Therefore, the effectiveness of policies in this area will in part depend on the level of foreign technology export controls and interventions, but there is no doubt that China will give enough policy space by adjusting import tariffs and substantially increasing the pre-tax deduction limit for enterprises.
Second, the import tariffs on cars and some daily consumer goods could be cut. From 2014 to 2016, in China’s balance of international payments, tourism services trade saw a deficit of around $200 billion a year. In 2017, the deficit reached $220 billion.
A considerable part of this deficit comes from Chinese tourists shopping abroad. Reducing some of the import tariffs on consumer goods would make Chinese people more willing to buy these goods domestically instead of overseas, which would benefit the wholesale and retail industry as well as reducing the deficit.
Which consumer goods’ import tariffs are expected to be lowered? They could include products that the domestic market lacks, substitute goods of the same class, and those with higher price elasticity, such as some luxury goods and high-grade agricultural products.
Third, an import trade platform could be constructed. The government work report said greater market opening would be promoted. This will include not only the reduction of tariffs but also the construction of import trade platforms.
Fourth, the first China International Import Expo will be held in Shanghai in November. International organizations such as the World Trade Organization and the United Nations Industrial Development Organization will be deeply involved in
this event. The Ministry of Commerce has officially established the China International Import Expo Bureau, which is responsible for organizing the activities and implementing the plan for the Expo. Therefore, the Expo will be an important task for the Ministry of Commerce this year. Its results and influence will be interesting to observe.
Finally, with regard to initiatives to actively expand imports, it is expected that there will be unified deployment and arrangements at the higher policy level. The aforementioned measures such as reduction of import tariffs, a substantial increase in the pre-tax deduction limit for enterprises and the construction of import trade platforms not only involve vertical coordination between the central and local governments, but also involve horizontal coordination among various ministries and commissions.
These moves will push the overall work deployment to a higher level. In the meantime, a higher-level policy stance will also have a strong effect in expanding the opening-up process, which is needed at such a sensitive moment for global trade. The author is a senior research fellow with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. bizopinion@ globaltimes. com.cn