Domestic Consumption 'Key to Solve Trade Rows'

Economic "rebalancing", shifting from export-driven growth to one led by domestic consumption, offers one of the best ways for China to ease trade friction with the US, the World Bank president told China Daily on Sunday.

Regarding possible trade disputes between China and the US, World Bank President Robert Zoellick urged both sides to tread carefully because protectionist measures were "quite dangerous".

US Treasury Secretary Timothy Geithner is due to face a US Congressional hearing this week on possible steps that could be taken against China over its exchange rate policy. House of Representatives Ways and Means Committee Chairman Sander Levin said "the large and persistent US trade imbalance with China is a major contributor to global imbalances, costing the US jobs and economic growth".

A number of US lawmakers in both the House and Senate are pushing for legislation that would allow the Commerce Department to impose duties on Chinese goods to offset what they consider as China's currency "undervaluation".

The important thing for both China and the US is to "keep the market open, not to close it", Zoellick said.

He predicted that the US economy will register "slow growth" and be troubled by "relatively high unemployment rates". Yet it faced no risk of "double-dip recession" this year, he said. But slow growth will "add to sensitivities" in Sino-US trade and China should resort to economic rebalance to reduce friction.

"Rebalancing can be significant in dealing with trade and other anxieties globally. That means China could shift from its heavy reliance on export growth to greater domestic consumption," he said. But he admitted "it's not easy".

China posted a third straight trade surplus of more than US$20 billion in August, according to statistics released last Friday by the General Administration of Customs. This sparked speculation that the US would be pressing China to increase the value of its currency.

Declining to comment on moves by the US, Zoellick nonetheless said "it's important to see the currency issue in the context of many other issues, including domestic consumption and the internationalization of the renminbi".

"It is also important to let this (rebalancing) become a point of strong vision that will lead to action that helps the global economy get out of the financial crisis."

According to the National Bureau of Statistics, China's industrial output in August surged 13.9 percent from a year earlier, higher than previously estimated. Many economists said the latest figure sent a signal that the Chinese economy is gaining momentum despite efforts to curb the real estate bubble.

Zoellick praised China for the "stabilizing factor" of its stimulus program and its impressive growth during the global financial turmoil.

He also said he expected China to benefit more through domestic consumption than "investment and infrastructure" spending.

China has previously examined a growth mode focused more on consumption but it took on greater urgency two years ago amid the global slump when demand for Chinese goods suffered a downturn.

The Chinese government announced efforts recently to stimulate domestic consumption and expand imports. It emphasized the huge potential of the domestic consumption market that is set to reach US$2 trillion in value this year. China also planned to include boosting domestic consumption as a priority in its 12th Five-Year Plan (2011-2015).

Zoellick said the World Bank, with its expertise and experience, could help China "improve the environment (raising consumption and expanding jobs)", through "providing more financing for small- and medium-sized enterprises".

"Chinese people are extremely hard-working and energetic, they want to build things and they want a better life." But "one area that the government has not been successful in, despite the amazing success it has achieved during the past three decades, is in creating lending sources to small businesses", he said.

The World Bank has been active in micro-financing business in China, issuing loans worth 10 billion yuan (US$1.48 billion) to more than 130,000 small businesses, and it plans to boost efforts in some of the western provinces, he said.

(China Daily September 13, 2010)