China yet to be a strong trade nation

Secondly, China's trade depends too much on export goods, relying heavily on processing trade. The United States has a big lead over China when it comes to trade in services. China’s trade in services in 2012 was about $471 billion, less than half of the US figure of $1.07 trillion.

The low value added processing trade makes China's economy more vulnerable. Uncertain global demand, a stronger yuan currency and rising labor costs are taking their toll on Chinese exporters. China has often become a victim of trade protectionism. According to the statistics released by the World Trade Organization, 35 percent of all anti-dumping investigations and 71 percent of all countervailing investigations since 2008 have been targeted at Chinese products.

Thirdly, export-oriented trade policy lets China pay a high environmental premium. According to a 2013 Asian Development Bank report, in the largest 500 cities in China, less than 1% has met the recommended environmental standard set up by World Health Organization. The economic cost of pollution in China every year is equal to 1.2% of GDP if calculated based on the related disease; 3.8% of GDP if calculated based on willingness to pay to avoid mortality risks.

Fourthly, there have been concerns in recent months over the accuracy of the country's trade data, with speculation that some Chinese companies have overstated their exports to circumvent controls on cross-border transactions and bring more cash into the country. Global Financial Integrity finds that$400 billion flowed illicitly into China from Hong Kong via improper trade invoicing between 2006 and the first quarter of 2013.

To be a real strong trade nation, the new Chinese leadership introduced initiatives on the 3rd Plenary Session of the 18th Central Committee, aimed at building up an open economy for China. The initiatives, such as speeding up the construction of free trade zones, building the Silk Road economic belt with Central Asian countries and the 21st century Maritime Silk Road with Southeast Asian countries, will deepen China's cooperation with the world and help spill over its development bonuses to other countries. The rise of China as a responsible trading nation can not only accomplish its own domestic economic reform goals, but also, strengthen China’s economic relations with the world, including the US.

China’s trade growth is an opportunity for the United States. According to the estimations by the US Congress Research Service, China could be a $450 billion market for US business. Many US firms see China’s market as critical for their global competitiveness. China is the largest foreign holder of US Treasury securities ($1.3 trillion as of October 2013). China’s purchases of US government debt help keep US interest rates low. US imports of low-cost goods from China greatly benefit US consumers. US firms that use China as their products’ assembly site, or use Chinese-made spare parts for production in US, are able to lower their costs. China’s goals of modernizing its infrastructure, upgrading its industries, and improving rural living standards could generate substantial demand for foreign goods and services.

2014 is a key year to realize President Obama's National Export Initiative, doubling US exports within five years. TPP will come to a tipping point and the Obama Administration will push TTIP forward. President Obama has declared in his Trade Policy Agenda for 2013 that the Administration will use every available policy tool and develop new tools to pursue the most efficient and productive pathways for trade liberalization in order to support US greater economic growth and jobs.

There is huge potential for further developing and expanding China-US trade relations to the benefit of both. This is particularly feasible if we are working together in the framework of a new model of major country relations.

Yu Xiang is an Associate Fellow at the China Institutes of Contemporary International Relations.

This article was first published at chinausfocus.com To see the orginal version please visit http://www.chinausfocus.com/finance-economy/china-yet-to-be-a-strong-trade-nation/