Market Watch No.4，2015

　　OPINION

　　Filling in the Gap

　　China’s foreign trade grew 3.4 percent in 2014， making it the third year in a row that China has missed its trade growth target. According to data released by the General Administration of Customs on January 13， foreign trade totaled $4.3 trillion last year， up 3.4 percent from 2013. Exports increased 6.1 percent to $2.34 trillion， while imports increased 0.4 percent to $1.96 trillion. The foreign trade surplus widened to $382.46 billion.

　　Some external factors may be attributed to faltering foreign trade， say， the plunge of the prices of petroleum and bulk commodities. But more importantly， it’s a sign that foreign trade has become a vulnerable part of the Chinese economy. China’s foreign trade index， a barometer of future trends， slid to 40.1 last December， its third consecutive monthly drop and indicative of a bleak outlook for foreign trade in the first quarter of 2015.

　　The Chinese economy had been export-driven since the Asian financial crisis in 1997. Foreign trade used to be a powerhouse to the broader economy， resulting in $4 trillion in foreign exchange reserves. However， after the outbreak of the global financial crisis in 2008， foreign trade has been losing steam in China， with sluggish exports and grim imports. A once powerful growth engine has become an Achilles heel for the economy， arousing much concern in the country.

　　It would be unrealistic to expect a stunning recovery of China’s foreign trade， despite recoveries in developed countries. Foreign trade’s poor performance in the Chinese economy may last for a considerable time to come. If the gap caused by bleak foreign trade can’t be filled in by other growth drivers， China’s economic growth will be greatly inhibited.

　　To that end， investment is playing its role. At the end of last year， the National Development and Reform Commission gave the green light to nearly 7-trillion-yuan ($1.13-trillion) worth of infrastructure investment projects， such as railways and airports. It’s expected to shore up growth by filling in the blank left by sluggish foreign trade.

　　Infrastructure construction projects can boost growth in the short term， but the effect can’t be sustained long term. Metaphorically speaking， the process is like getting a car started. Whether the car can keep going depends on other elements being able to support its functioning， such as gas and engine conditions. In a similar fashion， whether productive investment is effective depends on whether it can activate market demand and consumption.

　　Therefore， infrastructural investment can only serve as short-term stimulation to the economy， but the real growth momentum should come from demand and consumption， especially effective productive consumption and living consumption. Adjusting foreign trade strategies， changing the national mindset and searching for new approaches accordingly should all be top priorities.

　　As far as consumption is concerned， the biggest problem is a lack of spending power and confidence. The former is a result of insufficient employment opportunities and relatively low income， whereas the latter is a result of sky-rocketing housing prices， expensive medical care and fast-increasing educational expenditures.

　　Sluggish living consumption will result in a lack of momentum in productive consumption， thereby limiting consumption’s contribution to the broader economy. It may be difficult for consumption to fill in the gap left by weak foreign trade in the short run.

　　In a nutshell， there are three means to offset recent lackluster foreign trade： first， infrastructure investment in the short term and productive investment in the long run； second， innovation and adjustment in foreign trade to shift from low-end manufacturing to high-end equipment and technology； finally， consumption growth， which represents the intrinsic source of the economy’s momentum.

　　This is an edited excerpt of an article published in National Business Daily

　　NUMBERS

　　210 mln tons

　　China’s crude oil output in 2014， up 0.7 percent year on year

　　13.7%

　　Growth of farmer’s per-capita income in northwest China’s Xinjiang Uygur Autonomous Region in 2014

　　$1 tln

　　Estimated GDP of east China’s Jiangsu Province in 2014， becoming the second province in the country to join the trillion-dollar GDP club

　　99.59%

　　Employment rate of graduates from China Pharmaceutical University in 2014， the highest among all 75 universities overseen by the Ministry of Education

　　2 bln yuan

　　Amount of money that China’s Wanda Cinema Line Co. Ltd.， a movie theater company controlled by real estate mogul Wang Jianlin， plans to raise in an upcoming IPO

　　63 mln tons

　　Reduction of total coal consumption in 2017 from the 2012 level in China’s Beijing-Tianjin-Hebei region

　　60%

　　Estimated increase of initial public offerings in 2015 from international auditor PwC

　　3.68 mln units

　　Automobiles that Volkswagen China delivered to the Chinese mainland and Hong Kong in 2014， up 12.4 percent