Boost exports by upgrading industries

The decline of China’s exports has been expected. But it is unfair to attribute it all to the European sovereign-debt crisis and trade protectionism.

The high savings ratio in China, caused by an aging society and a decline in the birth rate, is a fundamental reason for China’s stagnating exports. So resorting to the government’s policies to boost exports by Chinese enterprises is unrealistic.

In fact, the rise of China’s export prices and labor costs, which are a result of China’s higher savings ratio, had already taken their toll before the 2008 subprime crisis. It is only now, four years after the global crisis began, that their effect on China’s trade and economy has become apparent.

The credit squeeze on both supply and demand has lowered the rate of capacity of some manufacturing enterprises to about 60 percent.

The increase of the manufacturing industry in the West and lower production costs in some Southeast Asian countries makes the problem stand out.

The trade authority has not yet responded to the decline in growth of the savings ratio at home with effective actions. Chinese enterprises must cope with more expensive labor and factory resources when it is increasingly difficult to get loans from the banks amid declining saving ratios.

If China continues to stimulate its economy with huge stimulus packages, it might increase production capacity and GDP in the short term, but it cannot guarantee sustainable economic growth because the main obstacle for the Chinese economy is not weak domestic demand but the savings ratio.

It is urgent for China to make use of foreign capital and transform its economy. Foreign capital can be used to develop emerging industries and eliminate the backward and less-developed industries. The limited domestic savings can be invested in transforming the current economic structure.

Weak exports are a result of China’s less-developed and inefficient industrial capacities. Only when these less competitive industries are replaced by new industries can China spend every penny of its savings well.

It takes time to upgrade the national industrial structure. So China’s exports will necessarily drop for a while. But in the long run, that is still better than robust short-term growth stoked by an injection of government capital.