China's trade deficit in the first quarter may not be worrying, but what should be worrying is the Chinese economy's heavy reliance on foreign trade.

This reliance justifies the concern held by some people aboutthree consecutive months' of trade deficits, which have been rare for China since the mid-1980s.

The latest customs statistics indicate that in the first quarter, China's total trade volumes were US$239.85 billion, rising 38.2 per cent over the same period last year.

In the period, China's trade deficit was US$8.43 billion, the highest quarterly figure in recent years.

While some economists say the trade deficits are mainly due to temporary factors such as rising prices for raw materials like oil, steel, and grain products in the international market, there is also a strong concern among policy-makers that the trade deficit might be a signal of the reducing global competitiveness of Chinese goods.

Internationally, trade deficit, even over a longer period, is not a major problem for huge countries because big countries usually have strong domestic consumption demand.

But in China, things are different. The country has experienced poor domestic demand for a long time and its tremendous economic growth is mainly stimulated by strong growth in exports and heavy investments, including a large amount of foreign direct investment (FDI).

According to the latest customs statistics, China's total foreign trade volumes in 2003 reached US$851.21 billion with a trade surplus of US$25.53 billion.

If China kept on experiencing trade deficits over a long period, it is imaginable that its economic growth will be greatly slowed because the country's domestic consumption is too weak to absorb its huge manufacturing capabilities.

The reliance of economic growth on exports in the populous China gives us true reason to reflect.

That is to say, years of vast exports and high trade surpluses have not created enough fortune for Chinese citizens to consume, invest and then re-invest in a good cycle.

Rather, China has to export more to earn more money, even though the profit margins of Chinese goods in the international market are very thin. The country relies more on FDI, despite the country's huge bank deposits, because FDI brings not only money but also international market shares which domestic capital is unable to obtain.

By the end of last October, total bank loans in China were 15.67 trillion yuan (US$1.89 trillion). Meanwhile, total bank deposits were 20.41 trillion yuan (US$2.46 trillion). A total of 4.74 trillion yuan (US$574.98 billion) in deposits have not been lent out by banks.

To change the situation, the country needs to improve its efficiency in using capital, especially using domestic private capital.

To ameliorate the efficiency of private capital, the government should withdraw from many profitable areas it monopolizes, such as oil, transportation and banks, as far as possible, so that private investors have greater opportunities to make money domestically.

There might be no ban on private capital investing in many of these areas, but it is very difficult for private investors to make profits in the face of competition from strong State-owned companies.

So far, the vast amount of domestic private capital is concentrated in low-profit manufacturing areas. Widespread oversupplies lead manufacturers to rush to export, even for very thin profits.

If the State were to withdraw from many monopolized, highly profitable areasChina would face capital insufficiency instead of the current capital oversupply. Capital utilization and efficiency wouldbe greatly improved.

The improvement of domestic capital utilization would bring greater wealth to Chinese citizensthan FDI, which leads to a low-profit export-oriented economy.

Statistics from the Ministry of Commerce show that half of Chinese exports are goods produced by companies with foreign investment with imported material. The local added-value of these goods created in China accounts for only 35 per cent of their total value.

And even this small portion of local added-value is mostly retained by foreign producers as profits. Only a tiny partis earned by Chinese in the form of salaries for labour, taxes, and the cost of renting or buying factory sites.

The government's withdrawal from profitable, competitive areas is necessary, but it does not leave the government to do nothing.

Accompanying the government's withdrawal from these markets, its expenditure on social security, education and health must be greatly enhanced. Expenditure should be much higher than it is currently so that the majority of the population, including farmers, can spend or even invest their limited money without worrying about their health, children's education and retirement.

Meanwhile, the government should also be occupied as a fair public and market administrator, a role which can only be properly played when the government has few interests in competitive business areas.