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China Shifts Shrinking Exports to Domestic Market

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As the financial crisis looms large over the world, China should redirect its export economy - the main engine of economic growth - to the domestic market, an EU official said on Tuesday.

EU Ambassador Serge Abou delivered an exclusive briefing on "The Future of EU-China Commercial Relations" at an event to mark the inauguration of a partnership between the EU-China Managers Association (EUCMA) and the European Union Chamber of Commerce in China (EUCCC).

He told China.org.cn that the way out of this economic crisis is to kick-start our economies, fight protectionism and create new opportunities for trade and investment.

"We should not to shrink into our shells," he said. "The EU and China have both taken proactive steps to get our economies moving again and we should focus on making sure our economic relationship is fair and open."

The Ambassador offered high praise to the measures taken by the Chinese government to combat the financial crisis and called for greater efforts from the EU and China to help businesses overcome the negative influence of the financial crisis.

Over the past two decades, much of China's income growth has stemmed directly from the country's success in exporting manufactured goods to the world. Two factors - foreign direct investment that goes into the construction of the export production facilities, and the multiplier effect of both the invested funds and the earnings from export ventures - contributed significantly to China's growth up through October 2008.

"With China’s exports shrinking, the country is shifting its focus to the domestic market, which consists of more than 1.3 billion people," he said. "Satisfying the needs of the country’s people is more important than international trade, and China should address this issue."

He anticipates that both EUCMA and EUCCC will work together on the promotion of EU-China business and trade, and on furthering their common goals.

Looking at the latest GDP forecasts and a massive credit expansion, it seems for now that China’s economy has decoupled from the western economies. More money was lent by Chinese banks during the first quarter of 2009 than for the whole of last year and GDP predictions are being revised upwards, according to EUCCC.

EUCCC vice president Jacques de Boisséson pointed out that this stands in stark contrast to what is happening in Europe and the US.

He noted that China’s quick response to the financial crisis has achieved commendable results so far, with economic operating data indicating a better than expected recovery, and development of China’s economy.

"But whether the recovery trend will take the form of a 'V' or a 'W' is not yet apparent," he said to China.org.cn.

While China is struggling to maintain continuing growth, seeking to realize a 7 to 8 GDP percent increase, Germany - the biggest economy in Europe and also the homeland of the chamber president - has dropped by 5 percent, China Daily reported.

Jacques de Boisséson predicated that if they are fortunate, Europe and the US will not fall further next year but will flatline.

"China cannot wait until Europe and the US recover, because that will be too late," he said. "Chinese exporters have to understand that the good times of big US and Europe buying are over."

Instead of waiting for others to drag the country upwards, China has to rely on its own potential by stimulating domestic consumption, restructuring its economy, and shifting the growth pattern, he said.

"China has been hit, and has then strengthened, as the country feels the impact of economic stimulation."

Companies in sectors related to infrastructure construction such as cement, steel, building materials, railways, and trains have benefited enormously from the package. Some experts suggested more investment should be made in what he called "soft areas" like education, renewable energy, environmental protection, healthcare and pensions, rather than in "unnecessary additional hard infrastructure".

EUCMA president Alessandro Celestino pointed out many major fields in which Chinese and European enterprises can work more closely, including overseas resources, scientific research and technology, bio-pharmacy manufacturing, construction contracting, and service industries.

He emphasized three advantages for Chinese enterprises in going global: the financial crisis has led to the shrinking of foreign assets; all countries are actively improving their positioning in order to attract investment; the difficulties many countries are experiencing are increasing the demand for low-priced and good-quality products from China.

"China is virtually the only big economy that is still growing. Of course everybody is trying to gain a foothold in it," he told China.org.cn.

(China.org.cn May 14, 2009)