Wang Xiaohong: Optimizing China’s Foreign Trade Structure Will Help US to Fight the Pandemic

Author: Wang Xiaohong, Deputy Director of the Information Department, CCIEE

The escalation of the novel coronavirus and the resulting negative influence worldwide will undoubtedly impact China’s trade. In the short-term, it will lead to a decline in China’s economy and in the long-term, it might affect people’s confidence and expectations adversely. In response, we need to come up with the following active actions.

I: The possible impact on foreign trade.

According to the lessons from the SARS breakout in 2003, the novel coronavirus may impact China’s foreign trade in the following aspects.

First of all, the pandemic will cause losses to export-oriented enterprises. Affected by the pandemic, the Spring Festival holiday is extended and enterprises are unable to start production on time. The delayed delivery of orders will impact the contracts signed with customers. In addition, enterprises still need to pay their workers during the pandemic period, which has put small and medium-sized enterprises under tremendous financial pressure.

Second, the pandemic will affect various domestic trade fairs and exhibitions and lead to a decline in orders from foreign merchants. When the SARS broke out in 2003, the turnover of the famous Canton Fair was merely $4.442 billion, only 16,400 business people from 164 countries and regions participated in the fair. In 2002, however, 120,000 people attended the fair and the export turnover was $16.8 billion. Foreign merchants are unwilling to participate in business activities in China due to the current pandemic.

Third, some countries have restricted Chinese companies from participating in foreign exhibitions and trading activities. On April 2, 2003, the Swiss government banned manufacturers from China and other countries from taking part in the Basel Watch and Jewelry Fair on the basis of “preventing the spread of SARS”. More than 130 watchmakers from Hong Kong and 40 from the Mainland suffered significant losses. In Hong Kong alone, the jewelry and watch industry lost between 20% to 30% of its annual orders, approximately 10 billion Hong Kong dollars. In response to the outbreak of the novel coronavirus, some countries have already started to ban Chinese citizens from entry, which means many Chinese companies will not be able to participate in overseas exhibitions.

Fourth, product exports and service trade will be directly affected by the pandemic. Some countries may impose restrictions on importing agricultural products such as meat, egg, milk and vegetable from China. Chinese consumers will find it very difficult to travel abroad and foreign tourists are reluctant to enter China. Especially, labor-intensive industries will suffer the most. In the long run, China needs to restore the confidence and expectations of foreign investors.

II: The strong resilience of China’s foreign trade will offset the negative impact of the pandemic.

Generally speaking, the impact of the pandemic on China’s foreign trade is limited and controllable because China has great economic resilience and policy room. Comparing with 2003, the current scale and structure of China’s foreign trade allow it to better resist the impact of the pandemic. More details can be summarized as follow.

First, China’s total imports and exports were $840 billion in 2003, and reached $115.74 billion in 2004, implying that the impact of the SARS on foreign trade was limited. In 2019, the total value of China’s imports and exports reached 31.54 trillion yuan, more than five times the size of 2003.

Secondly, the exports of mechanical and electrical products, high-tech and high value-added products have grown rapidly. In 2018, China’s exports of mechanical and electrical products accounted for 58.8% of the total exports, and high-tech products accounted for 30.1%. As for service trade, the knowledge-intensive services trade experienced rapid growth. In 2018, the imports and exports of services in the three traditional areas of travel, transportation and construction accounted for 63.4%, a year-on-year decrease of 2.2 percentage points; but the knowledge-intensive services trade increased by 20.7% year-on-year, accounting for 32.4% of total trade. As can be seen, new trade formats and models have become the new growth points. In 2018, China’s undertakings of offshore information technology outsourcing (ITO), business process outsourcing (BPO), and knowledge process outsourcing (KPO) accounted for 45.3%, 17.3%, and 37.4% respectively. Research and development services, engineering technology, and inspection and testing increased by 15.5%, 27.1% and 74.5% year-on-year. The new forms of foreign trade, represented by cross-border e-commerce, integrated foreign trade services and market procurement trade have maintained rapid growth for three consecutive years. The continuous optimization of the foreign trade structure and the upgrading of the value chain will help us reduce the negative impact of the pandemic and strengthen our confidence.

China’s tourism service trade has always had the largest deficit, $237.4 billion in 2018. The restrictions on Chinese citizens’ entry imposed by some countries will reduce the deficit. China’s agricultural exports were also very small. Therefore, the impact of these two industries on China’s foreign trade is rather limited.

III: Take active countermeasures.

The impact on the economy and trade will depend on the pandemic. Moreover, it will have an important impact on China’s brand image.

First, we should resolutely implement the order of the Party Central Committee and make pandemic prevention and control our top priority. We must do our best to win this fight against the novel coronavirus. The losses will be reduced to a minimum if we can put the coronavirus under control as soon as possible.

Second, we should unswervingly promote the high-quality development of foreign trade. Implementing an innovation-driven strategy, improving the quality of export commodities, vigorously developing knowledge-intensive service trade, and enhancing our ability to minimize external risks in foreign trade are both long-term and short-term strategies.

Third, governments at all levels must effectively stabilize foreign trade, foreign investment and employment, and alleviate the financial difficulties of foreign trade companies. Furthermore, they should increase support for export rebates and expand the scale of loans, especially the financing difficulties faced by small and medium-sized enterprises. We should solve the difficulties caused by the pandemic to foreign-funded processing trade enterprises so as to stabilize their confidence.

Fourth, better service should be offered to foreign trade enterprises. After the pandemic, we should give more support to foreign trade enterprises and help them to participate in trade fairs and exhibitions, increase financial support, provide more business opportunities so as to make up for losses caused by the pandemic. In response to the disputes in foreign trade caused by the pandemic, government departments and industry associations must make advance plans and establish a mechanism to resolve them.

Last but not least, we should expand the import of high-quality meat, eggs, milk and other agricultural products, medical supplies and other necessities, and implement zero-tariff for certain imported goods.