Former Ministry Think Tank Director Advocates Increased Investment with Key Partners to Balance Trade

Huo Jianguo, Ex-Commerce Ministry Think Tank Chief, on Challenges and Opportunities in Chinese Foreign Trade

Last Friday, I had the honor of joining the CCG VIP Luncheon in Beijing. The event was held by the Center For China and Globalization. Chaired by Dr. Henry Huiyao Wang, former Counselor to China State Council, the lunch talk invited special guest speakers, including Yi Xiaozhun, former Vice Minister of China's Ministry of Commerce and former Deputy Director-General of the World Trade Organization, and Huo Jianguo, Vice Chairman of China Society for World Trade Organization Studies and former President of the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce.

Nearly 20 countries' Ambassadors and senior diplomats joined this event. During the Event, Mr.Yi talked about China's new energy industry. He believes that China's achievements in this field are due to early planning and intense domestic competition.

Dr. Huo, on the other hand, addressed the broader landscape of Chinese foreign trade and strategies for balancing trade with key partners. Dr.Huo expressed his worries about China’s trade surplus. He suggests that China should invest abroad in its EV industries. In the Q&A part answering the trade imbalance problem, He believes joint ventures are the “only way” to address the trade surplus issue.

For the video of the whole event: https://mp.weixin.qq.com/s/oa4JUSPS-QHWSxpUNipCmA

Below is the transcript of Dr.Huo I made based on the audio record:

Today, I want to talk about Chinese foreign trade. And the title is The Challenge and the Opportunity of China's Foreign Economy. Because I think most people are quite concerned about China's foreign trade, exports, and imports. We say foreign economy, which means we not only include imports and exports but also foreign investment in China and Chinese enterprises invested abroad and overseas. And one Belt and Road should be concluded in the foreign economy. But today, I touch on foreign trade. I think in recent years the world situation has changed. It's changing. And China's export is facing many difficulties and challenges.

From the outside world, we see the Cold War idea spread out, especially after the Russian-Ukrainian wars. So, people all denied it. We don't like the Cold War idea concept. But actually, when people are doing things or making policies, they all follow the Cold War idea. That is very bad. That spoils the international trade environment. Besides the Cold War concept, there is also another concept about the blocks, the East and the West block, which is the confrontation. But now it's not very clear. But we should close to follow it.

Also, I think second is the competition between China and America. It's not only on trade. It's from trade to high tech to high tech finance and military and some other ideologies. That can't be recovered in a short time. But we all believe we still have the opportunity to exchange ideas and find some fields to cooperate. That's true. I think we will follow the American election and the general election and see the result. So that's from outside.

Outside factors also include the WTO becoming weak. The pilot body dismissed. And also, protectionism is up. And trade frictions everywhere. Not only with America but also recently, we all see friction with the EU and also India and Brazil. We all have some anti-dumpings and some other trade friction cases. So that's from the outside world. From inside, from our trade itself, we have two changes. One is the market structure is changed. Second is the commodity structure changing.

When we say market structure is changing, the American and EU markets are now shrinking. If we see this year, it's okay. Americans still maintain the 5% increase. The EU is also positively increasing. But if we look at history, at 10 years' time, we can see that the Chinese export share in America has dropped. From 2013, it was about 16 at that time. And now it's only 12. It dropped 4%. And the EU, even higher, it dropped more.

EU now is around 13%. But also, from the highest, it's 18%. Now it's dropped. So, 10 years ago, Chinese exports, if we look at the American and EU markets, accounted for 35%. Now it's only 25%. But still, I think it's also very important. At the same time, the global south, China's foreign trade with the global south is rising. From my point of view, I think if we want to make China's foreign trade stable, we need to continue to explore or stabilize the shares in the American market and the EU market. That's very important. We have big potential. The poor capital is about 50,000. And if we explore some other markets, say, Southeast Asia, the poor capital for GDP may be lower than 10,000, let alone the African market.

So, we see that last year, China's exports to America dropped by nearly 170 billion dollars. It's a big drop. But in Africa, we tried our best. It's only increased by about 20 billion US dollars. So that's a big difference. That will tell us that the American and EU markets are very important.

The commodity structure is, we can see some new technical products is growing. And the traditional is shrink. Textiles and light industry, daily consumers, is facing a big pressure, both from developed countries and also the competition from some newly developed industrialized countries. So that's the problem. But now the percentage of total exports has decreased. So that's the problem.

Second, our high-tech is facing limits and blocks from Western countries. That's a big problem because China's industry is upgrading. And when we upgrade our industry, we need to export some capital-intensive products. So those products, if we export to Europe or to America, they will have big, serious competition. So that's the new problem. So, Americans are blocking out top technology companies. We have no way out. We have to make some innovations by ourselves. And now I find we have made some progress. But to break the top technical, it still needs some time or needs more years.

And the third problem is the production value chain and the supply value chain. I think it's changing. There are two reasons. One is for the multiple companies; they need to make some adjustments. And second is the China-American competition. Americans urge some companies to retreat from China. But from China's perspective, we see most companies don't take quick action. They're still there. But we find some companies in Japan, France, or Germany are making the adjustment. But the experience is that we see those who moved out as the industry with the most losses. It's not very popular or sales is not very good. So that's my reason. And not only on the American initiatives to move out. For this problem, if China's investment environment and market environment are good, I don't believe those companies will retreat or move out. The only problem is we have to create a better market environment.

Fair competition and market-oriented reforms are needed. So we have to stable the foreign companies' investment in China. And the stress is not on the newly coming companies. We have to make the companies already here, make them more comfortable. If they feel good, if the market condition is good, if the Chinese economy is booming, the international capital will flow to China. It's not because Americans' interest rates change. Its most important is China's economic potential and for the future. So, for China, we are now really exploring the global south market. For example, Latin America, Africa, and even the Middle East. And Southeast Asia. That's all very important. But in the long term, we still need to explore or stabilize the American and EU markets. That's very important. I think we can't give up the American and EU market because that market is so big.

So, without this market, China's foreign economy would have to make the adjustment for many years. And also it's difficult. So that's my idea. And also, domestically, China should pay special attention to foreign economic development. They should put the foreign economy as the first priority. That's very important. This year, we see that investment, domestic investment, and consumption are very weak.

But export seems okay because January to August still maintained a nearly 7% growth rate. I think it's good. But that does not mean we can keep on this high increase rate because there are some new problems. So they should pay special attention to the foreign economy. If you notice, in the recent party's congress, they stressed that we have to make better use of the domestic market and the international market. Domestic resources and international resources. This is a very important signal, I think. They should notice this. That means we have to deal with the outside world. And to the outside world, China has to continue to insist on the high-level opening up. And you all noticed China announced to apply for joining the CPTPP. I think it is a signal.

That means China would like to join it. But the problem is, the most important is China is trying to study and follow the rules and regulations of the CPTPP. That's more important. The first arrangement is in the free trade zones in Shanghai and in a few other states. That signal means China is really doing something to follow the high opening. And (for) the higher opening, the more important (part) is for the service sector because the manufacturer we all serve is totally open. So, China's foreign economy is under adjustment. After the adjustment, China will make more investments abroad.

I think, for EV, China should invest abroad. This is especially true with key trading partners because, from international trade, the series tells us that trade should be balanced. If it's not balanced, and either part has a high surplus, that trade is not stable. Maybe there's no friction, but the problem is still there. So the surplus side should take more care about the trade balance. To solve this problem, one way is to increase imports. And the second way is to make an investment. So, in terms of investment, I don't think the Chinese 100% share is good. They should have joint ventures. Because if you have joint ventures, China only has 51, and the other part has 49. But that's good because the interest is all combined. So if any trade frictions happen, so the other part, they will help you to make some statistics. So that's good. So I myself have confidence about China's foreign trade and the Chinese economy. Thank you.