The risks on high foreign trade dependency
If a war broke out across the Taiwan Straits and a Western blockade materialized, how much economic loss would China suffer? In 2000, China's GNP was 8.3 trillion yuan which, at the exchange rate of 1 dollar: 8.3 yuan, equals 1 trillion U.S. dollars. Revenue from foreign trade was $474.3 billion, a gain of 31.5%, in which export took up $249.2 billion, an increase of 27.8%. Imports were worth $225.1 billion, up 35.8%, which represents a favorable trade balance of $24.1 billion. Within foreign trade, general trade export earned $105.2 billion, an increase of 32.9%, while import was $100.1 billion, an increase of 49.3%. Export of machinery and electronic products was $105.3 billion, up 36.9%; export of high tech products was $37 billion, up 50%; import of primary products was 46.7 billion U.S. dollars, gaining 74%; import of crude oil, soybeans, machinery, electronic and high tech products increased by 30%. The degree of foreign trade dependency, calculated by dividing the total amount of foreign trade by GNP, therefore was 47%. If we take out the twice-calculated processing trade figures, the degree of foreign trade dependency was 35%, and if we take out all the revenue from processing trade, then the degree of dependency was 23.5%. According to the average purchasing power, if we say the exchange rate of U.S. dollar to a renminbi is 1:5, then our GNP will be $1.66 billion, and the degree of foreign trade dependency will be 28.6%, and becomes 14.3% if we minus processing trade figures. Let's suppose China will continue in the pursuit of a liberalized economy without any significant readjustment of interest priorities, then the existing domestic and foreign resources will sustain our economic growth for another five years. If we have an annual GDP increase of 8%, which will be 11.1553 trillion yuan of renminbi, or 1.3604 trillion U.S. dollars at a rate of 1:8.3, total foreign trade will be 919.6 billion U.S. dollars, making a 67.5% rate of foreign trade dependency, or 39% without processing trade. If we calculate it at the rate of 1:5 according to the average purchasing power, then our GNP is 2.2311 trillion U.S. dollars, representing a 41.2% rate of foreign trade dependency, or 21% without counting in processing trade figures. If we depreciate renminbi to the rate of 1:10, then the GNP will be 1.1155 trillion U.S. dollars, making a historic high rate of foreign trade dependency of 82.4%, which is reduced to 41.2% minus processing trade. With inflation in China in mind, if we calculate our GNP according to the purchasing power parity of 1:7 (U.S. dollar to yuan), then it will be 1.5936 trillion dollars, making it 57.7% rate of foreign trade dependency, that is 26% without processing trade. Therefore, we can predict that the year 2005 will witness the peak of China's pursuit of a free economy. In 2005, annual export increase will be 15% achieving $435.8 billion; annual import will go up 20% to $466.8 billion, resulting in $31 billion of trade deficit.
Processing trade will go up 15% to $240.8 billion, and business operation fees from processing trade companies will be $50 billion. Direct foreign investment will be at the same level of $60 billion, helping with a favorable balance in foreign income and expenses. Our foreign currency reserve will be maintained at 200 billion U.S. dollars. The Chinese stock market will be open to foreign traders, which will increase the degree of our financial dependency. So, from all the above clear analysis, we can get a conclusion that once the Taiwan Straits war broken out and a Western blockade materialized, China’s high foreign trade dependency ratio will make the economic loss greater. Other factors caused China’s high foreign trade dependency China’s foreign trade dependency grew from about 8 percent to 64 percent by 2004, the highest in the world. But the high foreign trade dependency of China was different from that of other countries, since half of the trade involved processing materials supplied by foreign customers for re-export. So the actual foreign trade dependency of our country is about 30 percent. We should say that foreign trade has contributed a lot to China’s development. It enables China to make use of foreign resources and markets, increase their revenues and sustain a large number of employees. But now it’s time for them to reflect upon the problems in the import and export trade. There are at least three problems. First, China had intended to open our market in exchange for foreign advanced technology, but in fact, they have yielded their market without getting back any core technology. The monopoly of technology is still a big problem, so they need to rely on themselves for innovation. Second, they lowered costs, especially salaries, but have not attained improved efficiency or profits. Third, they have expanded the scale of foreign trade, but have not enhanced our international competitiveness as they lack the ability to innovate and many of our products don’t have their own brands. If these three problems can be definitely resolved, it may lowered the high foreign trade dependency at last. |