What Next for the Trade Surplus?

Related entries: Business Issues, Economy, General, Risk & Law, Trading

Trade surplus stories are never far away, as they excite politicians almost as much as economists…and create much demand for star-gazers.

According to a recent report in www.fxstreet.com, China’s National Development & Reform Commission (NDRC) has estimated a surplus of around US$210 billion for 2007 (up from US$177.47 billion in 2006 and US$102 billion in 2005).

While this increase may worry US and EU policy-markers, it is also if concern to some in China – including the trade minister, Bo Xilai. He is quoted by Forbes as saying that cutting the surplus will be the priority task for 2007, and that:

    “’An oversized trade surplus is not good for the development of China’s economy.”

While the message may be welcome to some, the “priority” is only one of many (economic growth, employment, corruption, environment etc., etc.). Neither continuing investment by foreign (exporting) companies, nor the best efforts of officials, are likely to have a rapid or radical impact on the figures – while the growing domestic consumer market is still some way off from creating a sustainable import surge. So, what to do? People’s Daily notes:

    “[China] still needs to ensure the rational use of foreign investment and sustainable export growth for the future. Under this premise, it should give equal weight to imports, introduce proper tax and financial policies, actively expand imports of advanced technology and key equipment badly needed in the country, and ensure economic and trade cooperative zones outside the country are run smoothly so as to create a harmonious trade environment.”

So, perhaps the western powers will agree to more high-tech (and arms) exports to China in order to help redress the balance…Perhaps not (“star wars” now being a bigger issue than “bra wars”!). Perhaps foreign investors can expect continued removal of long-standing preferential policies, the promotion of a few new, less attractive ones (e.g. on competition and employment), and a generally less welcoming (I mean “rational”) investment environment. Perhaps…

Either way, the surplus will be worth keeping an eye on, as it is an emotive issue that has the potential to cause another round of protectionist posturing that could, in turn, have a detrimental impact on business.

See news sources:

Leave a Reply

You must be logged in to post a comment.