China on the road to trade excellence

Rise will not only help it meet its domestic economic goals, but also deepen its ties with the world

The year 2013 was special for China, for it saw a new leadership take office, the Third Plenum of the 18th Central Committee of the Communist Party of China issue an extensive reform plan, and China become the largest trading nation.

The combined value of China's exports and imports last year was $4.16 trillion, up 7.6 percent year-on-year subject to an adjusted yuan, according to data released by the General Administration of Customs on Jan 10.

China's growing economic engagement with the world has reached a new level after three decades of reform and opening-up, with its trade partners also benefiting from the process. For example, a Rhodium Group report says Chinese companies provided more than 70,000 full-time jobs in the United States by the end of 2013, an almost eight-fold increase compared with 2007 (when they provided only about 9,000 jobs).

More importantly, the figures indicate that China has completed the transition from an inward-looking economy to an important stakeholder in the global economy and, therefore, should play a more active role in global affairs to maintain a more stable and benign economic environment in the world.

China was the world's largest trading nation from 1644 to 1912. In its Feb 16 issue last year, The Economist said: "The Qianlong Emperor (1711-1799) claimed, somewhat optimistically, that his dynasty's majestic virtue had penetrated every country under heaven. China's exporters and importers have now accomplished exactly that."

Becoming the largest trading nation is a remarkable achievement, but it would be wrong to compare present-day China to the one during the Qing Dynasty (1644-1911). Today's China doesn't have the Qing Dynasty's imperial ambitions and is well aware of its real position in the world - a big but not a strong trading nation.

First, China is still not an innovative economy and lacks many core technologies; it is thus weak when it comes to competition. The US economy, in contrast, is driven by innovation. According to the US Department of Commerce, its intellectual property-intensive industries support at least 40 million jobs and contribute $5.1 trillion (or 34.8 percent) to the country's GDP.

Second, China's trade is disproportionately dependent on exports, and the US has a big lead over China in terms of trade in services. China's trade in services in 2012 was about $471 billion, less than half of the US' $1.07 trillion. Moreover, the low proportion of value-added processing trade makes the Chinese economy vulnerable to certain factors, with uncertain global demand, a stronger yuan and rising labor costs taking their toll on Chinese exporters.

Third, China's export-oriented trade policy has come at a high environmental cost. The annual economic cost of pollution in China is equal to 1.2 percent of GDP if calculated on the basis of pollution-related diseases and 3.8 percent of GDP if calculated on the basis of people's willingness to pay to avoid mortality risks.

Fourth, a huge amount of hot money has flown into the country to the detriment of the economy. Global Financial Integrity says $400 billion flowed illicitly into China (via Hong Kong) through improper trade invoicing between 2006 and the first quarter of last year.

The need, therefore, is to build China into a really strong trading nation. The rise of China as a responsible trading nation will not only help it accomplish its domestic economic reform goals, but also strengthen its economic relations with the world, including the US.

China's continued trade growth will create more opportunities for the US. According to US Congress Research Service estimates, China could be a $450-billion market for US businesses. Many US companies see the Chinese market as critical to their global competitiveness. China is the largest foreign holder of US Treasuries ($1.3 trillion as of last October) and has thus helped the US government to keep its interest rates low, and the import of low-cost goods from China has greatly benefited American consumers.

Besides, China's efforts to modernize its infrastructure, upgrade its industries and improve the living standards of people in rural areas could generate substantial demand for foreign goods and services.

This year will be crucial for US President Barack Obama's National Export Initiative of doubling US exports within five years. The year will also see the Trans-Pacific Partnership reaching a tipping point and the Obama administration pushing the Transatlantic Trade and Investment Partnership forward. Obama said in his 2013 Trade Policy Agenda that his administration would use every available policy tool and develop new tools to pursue the most efficient and productive pathways for trade liberalization in order to achieve greater economic growth and create more jobs.

This means there is huge potential for developing and expanding China-US trade, which can be fully realized only if the two countries work together in the framework of a new type of major power relationship.

The author is an associate fellow at the China Institutes of Contemporary International Relations. The views do not necessarily reflect those of China Daily.