Balancing imports and exports will help preserve China's long-term growth potential and boost its demand for imports from other countries, according to Gail D. Fosler, chief economist of the Conference Board (TCB), the world's leading business membership organization based in New York.
"There are very good reasons for reducing the trade surplus from a global perspective for global stability, but it is an even more important reason for China," said Fosler, who is also TCB's executive vice-president.
She said the Chinese government realizes the trade surplus, which adds to foreign exchange reserves, is rising in a way "which is not only unsustainable for China but also unsustainable for the rest of the world".
And the trade surplus is a reflection of an extraordinarily high savings rate in China, and a disproportionately low level of consumer spending.
While the United States has a very low savings rate and its consumption in the share of its gross domestic product (GDP) is at 72 percent, the total consumption to GDP only a part of which is consumer spending is only 48 percent in China, according to Fosler.
"This is a gap which really needs to be narrowed from the standpoint of global balance," she said.
So China's emphasis on the need to increase consumer spending is really much related to China's own sustainability, Fosler said, adding that it is easy to conclude that the US is not going to be a growth engine for Chinese business in the years to come.
While the US continues to be a very important world economy, China's trade, and particularly its imports, provide tremendous stimulus to the rest of the world, she said. "The notion is that the US no longer has the power to pull the global economy, because US consumer spending, which is now at 72 percent of the GDP, is not going to hit 80 percent of GDP."
"So although services are still very important in serving long-term consumer spending, it (consumer spending) is going to rise in real terms about 3 percent, which means other markets must be found in order to sustain global growth."
Fosler led a team of international economics researchers from TCB visiting Beijing last week. They held a series of meetings with the National Bureau of Statistics, the Development Research Center of the State Council and the People's Bank of China.
They discussed issues concerning the economic forecast, economic growth, micro-economic statistics, the growth cycle and the economic index.
The work of economists worldwide in researching and forecasting on China could become a little easier as Chinese research and policy bodies improve economic statistics and attempt to develop greater transparency, Fosler said.
(China Daily January 23, 2007)