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Trade - Editor, 1 June 2009

New Policy Initiatives Aim to Boost Exports



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As the fifth month of 2009 drew to a close, China's authorities revealed new policy initiatives aimed at boosting exports which are suffering due to the global financial crisis. Features of the new policy initiatives include tax breaks, expanded credit insurance and more accessible financial aid. China's State Council also noted that the country will keep the yuan fundamentally stable and at a balanced level in order to ensure that exporters are not adversely affected by exchange rate risks. However, a high yuan will inevitably make goods from China more expensive which, in turn, is likely to prove detrimental to exports.

For some time now critics have been citing an artificially low yuan, compared to other major currencies, as being the reason behind China's huge trade surpluses. In recent months China’s government has been taking steps which will to some extent correct the imbalance. Among these steps is allocating $84 billion for short-term export credit insurance to trading companies, particularly for high-tech and labor-intensive industries. Smaller companies will benefit from additional financing guarantees from financial institutions.

Due primarily to the global economic crisis, which has left virtually no part of the world untouched, foreign demand for Chinese goods has declined dramatically. The ripple effect of the decreased demand for exports has been keenly felt by ordinary citizens who have experienced job losses. Efforts are being made to expand the domestic market to offset, at least to some measure, the decline in exports.

China’s year-to-date trade surplus at the end of April totaled $75.43 billion, with April’s trade surplus totaling $13.14 billion. April signaled the sixth straight month that both imports and exports declined, which has been blamed on the gloomy global economic outlook, as well as the depreciation of major currencies. With manufacturers in many countries encouraging their citizens to buy locally manufactured goods, there has been a resurgence of protectionism, which has also impacted negatively on China’s exports.

With US Treasury Secretary Timothy Geithner visiting Beijing this week, primarily to reassure China of the safety of its US investments, the issue of protectionism is likely to be on the agenda for discussion. Deputy Dean of the school of international studies at Renmin University of China, Jin Canrong, has been reported as saying that "if the US government resists protectionism, it would not only help maintain demand for Chinese goods, but also help discourage other nations from taking that route."

Trade

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