In his keynote speech delivered at the opening ceremony of the 2018 annual meeting of the Boao Forum for Asia, President Xi Jinping proposed to actively expand China’s imports. Domestic demand is the fundamental force driving China’s economic development and an inevitable requirement for meeting people’s ever-growing needs for a better life. China does not take aim at pursuing a trade surplus, and sincerely hopes to increase imports and promote current account balance.
From the Canton Fair to the Shanghai Expo, from actively expanding exports to expanding imports, all these changes demonstrate that the relationship between the Chinese economy and the world economy is experiencing a historical turning point. The active expansion of imports is not only an important mean for China to promote the balanced development of trade, but also a necessary requirement for the high-quality development in the new era.
First of all, the active expansion of imports is a new requirement for meeting the development of high-quality demand. One of the most significant changes brought by the 40 years of reform and opening up is the substantial transformation of China’s demand structure and consumption characteristics. China has now contributed the most to the world’s economic growth as it has the world’s biggest middle-income group and the largest social security network. In the process of shifting to high-quality development, green, customization, wisdom, differences and quality have become the standard demands of the new era.
To satisfy people’s growing need for a good life will inevitably increase China’s imports. In 2017, the number of outbound tourists from China reached 131 million and their spending on shopping was approximately US$ 200 billion. However, people’s growing need for a better life should be reflected in the enjoyment of leisure, entertainment, and not overseas shopping. Therefore, China will proactively expand its imports to make overseas shopping as part of people’s daily consumption, which in turn drives diversity, personalization and high-quality in the consumption of goods and services. This is also an import way of enhancing supply quality, promoting the transformation and upgrading of import structure and improving people’s well-being.
The purpose of promoting high-quality development and building a modern economic system is to meet people’s growing need for a better life. Taking the China-Europe rail services of the “Belt and Road” initiative as an example, a total of 7,600 trains were dispatched to 13 European countries as of the first quarter in 2018. If Chinese companies can build a global procurement system in the fulcrum cities and ports along the Belt and Road route and purchase high-quality, featured local products, they will not only be able to increase exports and economic development in those countries along the belt and road route, but also reduce the logistic cost of the China-Europe rail services, improve operational efficiency and meet the demand of Chinese consumers effectively. As Chinese companies continue to enhance their global procurement networks and capabilities, the active expansion of imports will ultimately improve the economic well-being of all stakeholders.
Secondly, the active expansion of imports is the new way to promote the development of high-quality supply. Imports can play two positive roles in promoting national economic and social development. On the one hand, it can meet the growing need of the people continuously. On the other hand, it will create new supplies to meet new demands. More details will be described in the following three aspects.
First, expanding imports actively is good for encouraging creative imitation and technological innovation. For example, many private enterprises in the Pearl River Delta started their operation by adopting the concept of “San Lai Yi Bu” trade (processing with materials sent in abroad, manufacturing according to the designs and patterns sent in, assembling with parts sent in, engaging in compensation trade). Later on, they have gradually changed from processing trade exports to general trade imports, service trade imports and cross-border E-commerce trade imports by vigorously developing bonded imports, exhibitions, processing and logistics. As a result, they have not only created the world’s most comprehensive industrial chain, value chain and supply chain in the Pearl River Delta, the Yangtze River Delta and other regions, but also has begun to form an endogenous innovative chain through creative imitation.
Second, expanding imports actively is conducive to encourage the upgrading of the domestic supply structure and technological innovation. During China’s economic transformation, the expanded imports have introduced international market economic factors to China, brought in foreign competition and various types of innovative achievements. All these external factors have forced Chinese companies and industries to adopt a “learning by doing” approach, motivated them to proactively seek international competition, and unleashed the economic vitality in technological, institutional and cultural innovations.
Third, actively expanding imports help to improve new technologies, new industries and new business models. China imports not only commodities but also a large number of intermediate products, apart from relevant services, management, systems and culture. In particular, the import of services has greatly enhanced the efficiency and facilitation of the innovative eco-environment because of the tertiary effects of the intellectual property rights, direct financing, professional services, intangible assets, talent exchanges, human capital development, and perfect social infrastructure.
Thirdly, actively expanding imports will improve China’s output-input efficiency. As China started to carry out high-quality development, the market-oriented reform of factor prices has entered a tough battle. From the perspective of input-output efficiency, opening up and competition is the best ways to continuously improve labor efficiency, capital efficiency, land efficiency, resource efficiency, environmental efficiency, the contribution of high-tech and total factor productivity. On the one hand, we should let the market competition mechanism to determine the allocation efficiency and the price of labor, capital, land, resources, and environment. On the other hand, we should let the market competition mechanism to inspire innovation, increase the contribution of scientific and technological progress and total factor productivity continuously so as to stimulate economic vitality. The active expansion of imports will break up the monopoly on various resources and remove the resistance of vested interests and institutional obstacles.
In order to solve the problem of inadequate domestic development, we should create a market environment which promotes fair competition, free competition, and inclusive competition, rather than confrontation. In this sense, fair competition is an effective way to force reforms. The active expansion of imports and creation of a fair playing field will improve the overall input-output efficiency and total factor productivity. The key factor is to create an effective environment for business, investment and market, and form a concerted effort between the government, market and society.
Last but not least, the active expansion of imports is conducive to achieve current account balance. Currently, the political and economic confrontation between major powers is likely to escalate, and trade frictions have become long-term and repetitive. The report of the 19th CPC National Congress pointed out that a peaceful international environment and a stable international order is necessary for China to realize its Chinese dream. China’s expansion of imports is a win-win approach that seeks comprehensive cooperation.
It is worth noting that the active expansion of imports may also lead to current account deficit, and we have to figure out how to finance the deficit in the future. In the first quarter of 2018, for example, China’s current account deficit was US$ 28.2 billion, which is the second deficit since the US$ 900 million deficit occurred in the second quarter of 2001. This deficit can be attributed to the combined effect of the year-on-year decrease of US$ 28.9 billion in goods trade surplus and a year-on-year increase of US$ 12.8 billion in service trade deficit. Unlike the current account deficit in the second quarter of 2001, the occurrence of the deficit may become the new normal in the future, which is a new situation China has to face in the future. In order to push forward the high-quality development and the construction of a modernized economic system, we have to solve the major problems in relation to the balance of international payments and the RMB exchange rate.