Trade imbalance not China's choice

Miao Yingchun, China Daily, Asia News Network, Beijing

Arational attitude should be taken when dealing with the issue of the trade imbalance between China and the United States.

According to the latest statistics by the Chinese Ministry of Commerce, the trade volume between China and the U.S. amounted to US$56.4 billion in the first half of the year, and China has a trade surplus of $23.45 billion -- a 32 percent growth over the same period last year.

Statistics from the U.S. Department of Commerce show the trade volume between the two sides in the first five months of this year was $65.12 billion and China's trade surplus was $43.98 billion, a 27 percent year-on-year rise.

Either set of statistics point to the prominence of the issue, which has caused wide-spread concern in the U.S. and become one of the most touchy issues influencing Sino-U.S. trade ties.

Trade imbalance between China and the U.S. -- the largest developing and developed country respectively -- is, in a sense, inevitable.

The inevitability comes from the different economic characteristics of developing and developed economies. It is also attributable to their different roles in international labor division in a globalized era.

Given its abundant labor resources, China has comparative advantages in labor-intensive sectors such as textiles, garments, toys and shoes. The fact is that over 70 percent of Chinese products exported to the U.S. fall into this category.

However, these products are mostly made from imported material, so the Chinese manufacturers only get modest processing returns from assembling imported raw material before exporting the finished products.

Moreover, in recent years, as they have been producing an increasing percentage of China's processed exports, foreign- funded manufacturers in China have pocketed much of the earnings.

As a result, huge hidden revenues taken by U.S. enterprises are behind the U.S. "trade deficit" with China.

As to the great gap between the trade statistics offered by China and the U.S., the key is transit merchandise.

Much of the goods, both sold from China to the U.S. and vice versa, are sent through Hong Kong, during which value is added.

According to a survey carried out by a statistical team from the Sino-U.S. Joint Commission on Commerce and Trade, the value of Chinese products is, on average, 40.7 percent higher than their original value if they go from Hong Kong to the U.S. This is much higher than the normal level in entrepot trade around the world.

Some major transit merchandise, like toys and knit wear, may even see a rise of 100 percent.

Judging from the structure of exported items, the trade imbalance is produced by global labor divisions.

The U.S. Department of Commerce statistics show the top five categories of goods China sold to the U.S. in 2002 were miscellaneous manufactured articles, parts for office machines and automatic data processing machines, telecommunications equipment and sound recorders, footwear and electrical machinery.

Some said China is switching its focus of exports from textile products to computers and telecommunication products.

However, it should be noted that 89.65 percent of China's high-tech exports were in the form of processed trade. China's exports are still mainly labor-intensive products.

By contrast, the top five commodities the U.S. sold to China from 1997 to 2001 were aircraft, telecommunications equipment, picture tubes, oil seeds and oleaginous fruits, and automatic data process machines. They are all technology or capital- intensive products and agricultural produce with international competitiveness.

The exported goods of the two countries reveal their different positions in the chain of global labor division.

Instead of competitors, China and the United State are partners which can benefit from each other's advantages in labor.

However, because the U.S. has imposed harsh limits upon the exports of high-tech products to China, its comparative advantages in production over China cannot be fully brought out.

This is the root cause of the trade imbalance between the two countries.

Another important cause of China's trade surplus is the industrial restructuring of its neighboring countries and regions since the mid-1980s.

After the restructuring, labor-intensive industries were moved to China. Those processing and assembling businesses, for which they had trade frictions with Europe and the U.S., were also shifted to China.

As a result, a new trade pattern came into being in the Asia- Pacific region: China imports raw material and parts from its neighbors and exports finished products to the U.S. and Europe.

In this way, the market share of China's neighbors in the U.S. and their trade surplus with it are shifted to China.

The Institute for International Economics, a Washington-based non-profit research institute, found that about 90 percent of products the U.S. bought from China were substitutes of goods from East Asia and Southeast Asia, most of which are toys, footwear and garments.

Only 10 percent of Chinese exports have direct competition with U.S. products.

Since the 1990s, the U.S. has promoted a globalized production pattern that serves its national interests, moving labor- intensive, energy-consuming and pollution-causing sectors to other countries.

As a result, the internal trade of its multinational companies became a main reason for rocketing U.S. trade deficit.

Products and services sold by branches of U.S. multinationals across the world to the U.S. are also regarded as U.S.-orientated exports.

As U.S. investors enter more fields in China, exports by Chinese-based U.S. multinationals will further decrease the U.S.' export volume to China.

The writer is from the Institute of International Relations at Wuhan University in Central China's Hubei Province.