Milestone set to be reached

Even as China faced huge economic challenges last year, it may have knocked the US off its perch as the world's largest goods trading nation.

Whether that happened will become clear when the US publishes figures for December soon, but earlier figures pointed strongly in that direction.

Until recently China has been the world's largest exporter of goods and the second largest importer of goods.

Last year, combined exports and imports rose 7.6 percent to $4.16 trillion, the General Administration of Customs says. Exports were worth $2.21 trillion, 7.9 percent higher than the year before. Imports were worth $1.95 trillion, 7.3 percent higher than the previous year, giving China a trade surplus of $259.7 billion.

The government has been on a mission to improve the quality of the country's overseas trade and the way it is conducted. Zheng Yuesheng, a spokesman for the customs administration, says that an economic warming-up in China's big export markets has contributed to last year's strong figures.

In the first 10 months of the year the combined value of China's exports and imports exceeded that of the US by $192 billion. The pace of growth outstripped that of the US by 7 percentage points, Zheng says.

"The value of US exports and imports rose less than 1 percent in the first 11 months. On those figures, it's all but certain that China overtook the US to become the world's largest goods trader."

The value of US exports and imports in the 11 months to November was $3.59 trillion, about $570 billion less than the corresponding figure for China. The average monthly value of US trade in the 11 months was $326 billion.

The value of China's exports and imports exceeding $4 trillion last year was a milestone, Zheng says, $1 trillion having been exceeded in 2004, $2 trillion exceeded in 2007 and $3 trillion in 2011.

However, overall growth in trade last year failed to reach the government's target of 8 percent, the Ministry of Commerce says. In 2012, China's trade grew 6.2 percent; the government's target had been 10 percent.

Zhang Yiping, a researcher with China Merchants Securities Co Ltd, says the failure to meet the 8 percent target last year was "mainly owing to the unsatisfactory performance of imports".

But on the whole, "exports were not bad", Zhang says. "In emerging economies there was stronger demand for Chinese exports, while in the US and the European Union demand weakened."

Shen Danyang, a spokesman for the Ministry of Commerce, said at a news conference on Jan 16: "Basically China's foreign trade met last year's target, and the results were achieved with a lot of hard work. It was an outstanding success internationally given sluggish world demand and the uncertain recovery."

The country's export juggernaut is made up of numerous small- and medium-sized enterprises such as Ningbo Haixin Hardware Co Ltd in Zhejiang province.

Meng Yu, the company's sales manager, says the value of its exports rose xx??? percent last year, despite its exports to Japan falling and despite rising labor costs, increasing competition and greater difficulty in borrowing from banks.

"We tightened internal controls to cut costs and improve productivity," Meng says. "We also dropped low-end products or markets to step up industrial upgrading and improve production. We also brought in more automation to cut the use of labor."

The company, a private business set up in 1995 and which has 280 employees, sells fasteners such as bolts and nuts in the United States, Northern Europe and Southeast Asia.

"China's exports are still strongly competitive globally," Meng says. "Well-established factories give the country outstanding manufacturing ability. We are rich in resources and the cost of labor is still lower than in many other places.

"Chinese exporters have made important productivity gains in recent years, but dealing in low-end products is becoming harder."

In recent years doubts have grown about China's export competitiveness because costs, especially for labor, have risen rapidly. Some foreign invested exporters have moved their Chinese plants to Southeast Asian countries where labor is a lot cheaper.

"For private businesses, conditions are not so good for shifting domestic plants to Southeast Asian countries," Meng says. "Although the cost of labor is much lower, there is a dearth of resources, and they rely on imports. In some countries, the political and economic environment is poor, not to mention the big differences in culture and language. There can also be opposition from local competitors or industrial associations."

Shen, the commerce ministry spokesman, said that China's trade growth not only boosts the country's economic growth and employment, but also creates huge employment and investment opportunities for its trading partners. He quotes a report from the World Trade Organization as saying that China is one of the top three import sources for 107 economies of the WTO's 159 members and one of the top three export markets for 42 members.

It is important to consider the upgrading and structural improvement in China's goods trade since the 2008 global financial crisis, Shen says.

"China's trade structure has made remarkable progress on many fronts over the past five years."

Emerging markets accounted for 61.2 percent of China's total exports last year, compared with 53.8 percent in 2008, the Ministry of Commerce says. The mainland's top five trading partners were the European Union, the US, the Association of Southeast Asian Nations, Hong Kong and Japan. But combined trade with the EU, the US and Japan accounted for 33.5 percent of China's total trade last year, compared with 35.2 percent from the previous year.

At home, the regional structure of exports was also given priority, with central and western regions accounting for 15.5 percent of China's exports last year, compared with 10.3 percent five years ago. The share of exports by private businesses, which reflects the vitality of China's exports, was 41.5 percent last year, compared with 26.8 percent five years ago.

In addition, the structure of Chinese exports has changed, high-tech accounting for 29.9 percent last year, compared with 29 percent in 2008. Last year, high-tech exports were worth $660.34 billion, an increase of 9.8 percent year-on-year. Exports of mechanical and electrical products were worth $1.27 trillion, an increase of 7.3 percent year-on-year, that represented about 57.3 percent of the country's overall exports, Shen said.

The share of general trade, as opposed to the processing trade - in which parts or raw materials are imported then re-exported as finished products once Chinese businesses process or assemble them - rose to 52.8 percent of all trade last year, compared with 48.2 percent in 2008, he says. The processing trade accounted for 32.6 percent of overall trade last year, down from 41.1 percent in 2008.

"Although China is now a leading goods trader, there is still a long way to go for it to turn from a large goods trader into a strong goods trader," Shen said.

China's export business remains on the medium- and low-end of global industrial chains and has limited technology and value added. Challenges also include rising costs, appreciation of the renminbi and orders shifting to emerging economies, Shen said.

However, the ministry is cautiously optimistic about the country's trade prospects, he said. "It's hard to say exactly what growth will be this year, but it is unlikely to be higher than last year."

In trade figures in the first quarter of this year there are likely to be fluctuations because of rising costs, a shortage of capital, fierce competition and foreign trade figures in the corresponding period last year that are widely believed to have been overstated as the result of speculative capital inflow disguised as trade payments.

"The global economy is recovering, but the momentum is not solid," Shen said. "Costs keep rising at home, challenging small and medium-sized enterprises in particular. Competition is stiffening globally. Orders are drying up as developed economies encourage their overseas businesses to repatriate and Southeast Asian countries win more orders because of their lower costs compared with China."

Zheng, the customs administration spokesman, is also keenly aware of the challenges China's foreign trade faces this year. "Foreign direct investment in Chinese manufacturing fell last year, suggesting weakened momentum in the country's exports in the near future. Processing trade imports rose 3.3 percent last year compared with the previous year, indicating that prospects for processing trade imports in the near term do not look bright."