Wei Jianguo: Promoting High-Quality Development of China’s Foreign Trade

The negative growth of 11.4% in China’s exports in the first quarter reflected the extremely unusual economic development and the unprecedented pressure on the Chinese economy brought by the global spread of the coronavirus pandemic. The pandemic outbreak has led to suspended production around the world. Many experts and scholars predicted that China’s foreign trade might experience a sharp fall this year.

However, Wei Jianguo, former Vice Minister of Commerce and Vice Chairman of the China Center for International Economic Exchanges, believes that it is possible for China’s foreign trade to achieve a relatively stable growth this year. In an exclusive interview with the “Outlook Weekly”, Wei Jianguo said that having considered China’s advantages and the need for global economic recovery after the pandemic, it is possible for China’s exports growth to reach 5% this year.

According to Wei Jianguo, the global trade pattern will go through some changes when the pandemic is over. China needs to give full play to its market and manufacturing advantages, turn crises into opportunities, and strive to improve the supply and industrial chains to promote the high-quality development of foreign trade.

China’s foreign trade is unlikely to have a cliff-like decline.

Outlook Weekly: China’s economic development in the first quarter faced unprecedented challenges, how will the coronavirus pandemic affect foreign trade?

Wei Jianguo: The pandemic will affect foreign trade in three aspects.

First, orders in foreign trade will be affected. Orders are the lifeblood of foreign trade-oriented companies because companies will not arrange raw material production and other relevant activities until they receive orders from clients. China’s foreign trade has been affected by different markets at different times. The first wave is the changes in the markets of Japan, South Korea, Europe and the United States; the second wave is the changes in emerging markets such as Turkey, Brazil, and India; and the third wave is the changes in the markets of Africa and Latin America. This is very different from the international financial crisis in 2008 and SARS in 2003.

Second, the shortcomings of the industrial and supply chains restrict the resumption of production. After making important progress in controlling the pandemic, China should resume production quickly. However, the work resumption has not been so efficient and effective due to the uncoordinated and unsynchronized upstream and downstream industrial chains.

Third, the global spread of the pandemic and the trade protectionism has reduced global demand. The change in demand brought by the global economic downturn is temporary and it will recover after the pandemic, but enterprises must have adequate countermeasures to go through the difficult period.

China’s foreign trade market is facing unprecedented challenges.

Outlook Weekly: Based on your analysis, how will foreign trade develop throughout the year?

Wei Jianguo: Despite the huge pressures and challenges, I don’t think China’s foreign trade will experience a cliff-like decline. China has become the world’s second-largest economy and the world’s largest commodity trader, therefore, I think that China’s foreign trade can still achieve rapid development after the pandemic. If the pandemic can be controlled quickly and the economy can be recovered as soon as possible, the growth of foreign trade may reach the level of last year. Generally speaking, the third quarter is the best time to place orders and China can seize this window period to promote the steady growth of foreign trade.

Outlook Weekly: What is the basis for making a relatively optimistic judgment?

Wei Jianguo: My prediction is mainly based on China’s advantages and conditions in the following aspects.

Firstly, China has great advantages in general trade, processing trade and cross-border e-commerce. When the general trade is down, China can still rely on processing trade and cross-border e-commerce. The current pandemic has reduced face-to-face transactions but online orders are increasing. China’s first online Canton Fair will accelerate the development of cross-border e-commerce.

In the early stage of China’s reform and opening-up, foreign trade mainly focused on general trade. In the 1990s, processing trade and the “Three-plus-one” trading-mix accounted for about 50% each. Now, the general trade has achieved great development and surpassed the processing trade. Statistics show that general trade accounts for 67% of the total trade, processing trade accounts for 23%, and cross-border e-commerce accounts for about 10%. This year, the growth rate of cross-border e-commerce has surpassed that of general trade and processing trade, and China has become the world’s leading market for cross-border e-commerce. If more policy supports are given to cross-border e-commerce development, it will effectively reduce the impact of the pandemic on foreign trade.

Secondly, suppressed consumption exists all over the world. When the pandemic is over, all countries must develop their economies and China will be the engine of global economic development. China’s resumption of production has provided great confidence in world trade, and all countries have turned their eyes to China. Due to the global pandemic, many countries are unable to supply enough goods for production and daily life, thus, they need to work with China, a country with the world’s most complete manufacturing industry.

This trend will still exist when the pandemic is over. The number of online orders has increased significantly since the outbreak of the pandemic. According to data from companies such as Alibaba and Suning, orders from overseas through e-commerce platforms have doubled and cross-border e-commerce exports have shown double-digit growth. The China-Europe trains in March increased by more than 30% year-on-year, showing that the European market needs various consumer goods urgently. In addition, Latin American countries are also increasing orders for Chinese goods.

Third, the recovery of the world economy will rely more on the Chinese market. With a population of 1.4 billion and more than 400 million middle-income groups, China has a huge consumer market. When the pandemic is over, China will experience surged consumption. China’s total retail sales is expected to reach 45 trillion yuan this year and surpass the United States, the world’s largest consumer market.

The international import expo held by China has highlighted the great sense of responsibility China has. We often say that export is for yourself but import is for others. Increasing imports during this difficult time will undoubtedly be welcomed by all countries. More exhibitors from different countries and regions will take part in the International Import Expo this year. China will drive global exports from agricultural products to machinery products, high-tech products, and even luxury goods such as watches and bags. The increase in China’s imports and exports will provide great support for global economic recovery.

Outlook Weekly: What measures need to be taken to reverse the decline in foreign trade in the short term? How to improve the weak links of supply and production chains?

Wei Jianguo: At present, we must stabilize all the enterprises in foreign trade. Enterprises are “cells” of the economy and they can recover quickly after going through difficult times. Governments should give enterprises supports in social security and taxation to help them overcome difficulties.

At the same time, we must encourage foreign trade-oriented companies to shift their focus from the overseas markets to the domestic markets. For example, there is a factory in Shenzhen that used to produce high-power motors for overseas markets. After the pandemic broke out, their orders disappeared but they started to produce small motors for electric curtains for the domestic market. The market transformation has been very successful. For enterprises that can not shift their markets domestically, supports should be given so that they can stabilize production capacity.

These short-term measures cannot solve the problems of the production and supply chains. The key is to give full play to China’s industrial advantages. After more than 40 years of reform and opening-up, China has established a complete production and supply chain. However, some problems remain unsolved. For example, there is an inadequate integration between the domestic and international industrial chains. The reason for this problem is that we have not paid enough attention to the transformation and upgrading of traditional industries. In the service industry, there are problems such as entry barriers, insufficient competition, poor services and quality, and irregular standards. Currently, China has the most complete manufacturing industry and is the only country in the world that can produce all kinds of products. Among the more than 400 products worldwide, China can produce 220 of them with the largest quantity. Furthermore, China is also a country with the biggest number of world-class industrial clusters. It has ten advanced manufacturing clusters with complete upstream and downstream production chains, but the advantages of China’s manufacturing industrial clusters have not yet been brought into play.

We should conduct evaluations on the manufacturing industry clusters, finding out the orders they have, the status of work resumption and the difficulties they face so that we can help them to solve existing problems. Moreover, we should establish an information platform as soon as possible and promote the unified collection of orders and labor sharing among various enterprises. We should give full play to our institutional advantages and conduct in-depth research on the strategic goals of manufacturing powers, and propose a road map and timetable.

Outlook Weekly: More countries believe that China will become the main source of power for the world economy after the pandemic. How will this change the foreign trade pattern?

Wei Jianguo: The global supply chain will experience four “eastward moves” after the pandemic.

High-end industries will move to the east. The economies of China, Japan, South Korea and other countries in Northeast Asia will recover faster than other countries. Thus, high-end industries such as cloud computing, robots, big data, smart manufacturing and new materials will move to Northeast Asia. The development of global industries will move closer to areas with the biggest consumption growth. China has a huge consumer market and it might become the world’s largest consumer market this year.

Technology and capital will move to the east. The move of the global industrial chain to the Northeast Asian economic circle has also brought China world-class technology and a large amount of international capital. The implementation of the Chinese Foreign Investment Law this year will further enhance the business environment and bring more foreign investment. China has adjusted its economic structure through supply-side structural reforms to improve the quality of China’s economic development and attract global high-tech companies to invest in China.

High-end services will move to the east. The pandemic will prompt China’s consumption upgrading as high-end consumer products and medical care moves eastward. China’s high-quality economic development requires a higher level of service. In 2019, the consumption of the catering industry was 467.21 billion yuan, accounting for 9.4% of the country’s consumer goods. After the pandemic, the consumption upgrading in the catering industry will also promote service upgrading, which will attract more high-end service companies worldwide to enter the Chinese market.

High-skilled professionals will move to the east. The global industrial transfer will inevitably bring high-skilled professionals to the east, such as China. The establishment of the first innovation center outside the United States by MIT in Hong Kong indicates the development opportunities created by the Guangdong-Hong Kong-Macao Greater Bay Area. In order to attract foreign investment, various regions of the country provide policy subsidies for high-end talents.

Outlook Weekly: In the long-term, what is the key to promoting high-quality development in foreign trade?

Wei Jianguo: First, we must make good use of the global market. China’s huge market will attract more foreign investment after the pandemic. In the future, China’s economy will maintain steady growth and more foreign companies will continue to invest in China. We should take advantage of the market and continue to hold the China International Import Expo, which will set a benchmark for the global economic recovery after the pandemic and attract more participants. For companies that want to withdraw from China, they will fail to do so, or regret after withdrawing from the Chinese market.

Second, we must focus on creating a better business environment. In addition to market opportunities, a better business environment is also important for foreign investors. China is creating the best business environment in the world by promoting the rule of law and the construction of free trade zones. Specifically speaking, China will build a better environment in the following three areas:

First of all, China will attach more importance to the protection of intellectual property rights by establishing more intellectual property courts and raising violation costs. Any company that violates intellectual property rights should be punished with a penalty, so that foreign investors can see the fundamental changes in China’s IP protection. Secondly, we should increase government services. The Foreign Investment Law has come into force this year and the items on the negative list have been reduced significantly, from more than 190 measures in 2013 to the current 37. At the same time, China will allow more foreign-funded enterprises to enter the financial industry, insurance industry and pension services. Last but not least, all foreign-funded enterprises in China should be treated equally. They shall be able to enjoy taxation and fiscal preferential policies and fair competition and their legitimate rights and interests will be fully protected. According to the World Bank, the ranking of China’s business environment jumped from 78th to 46th in 2018, and 31st in 2019. I think that China’s business environment ranking will be further improved after the pandemic.

Thirdly, an open, stable and safe industrial chain should be established. This is an important decision of the CPC Central Committee and will affect China’s industrial policy for decades to come.

An open industrial chain means that China’s industrial chain will remain open to the rest of the world, regardless of the types of products. This will promote the deep integration of economic globalization.

A stable industrial chain means that it can minimize risks, especially temporary and unexpected risks.

A safe industrial chain means the safety of the production and production factors (labor, capital, technology, equipment, etc.). We must be able to maintain a safe supply even in the case of force majeure such as natural disasters.

Creating an open, stable and safe industrial chain will not only show China’s sense of responsibility in the global manufacturing industry, but also provide more confidence to the global economic recovery. This is important for implementing the principles of mutual consultation, joint construction and sharing, and global industrial integration.