OPINION: Trade war poses no major threat to China
By Ed Zhang
30 January 2017

BEIJING (China Daily/ANN) - Having long foreseen the unsustainability of its export-driven growth since the 1990s, China has been gradually reducing its dependence on foreign trade for almost 10 years.

In the Chinese press, both offline and online, business commentators are all talking about the same thing: The coming trade war with the United States.

Whether or not there will be a full-scale trade war is up to President Donald Trump, because that is what he said he wants. The business commentators have been explaining to their readers that trade war is not a good thing. But they should do more than just talk.

Business owners and the government in China can do many things to make the economy less vulnerable to outside influences and stronger to resist an imminent trade war.

No matter on how many fronts, and how seemingly powerful the trade war, it is an impact from the outside, after all. And how much resistance an economy can mobilise depends primarily on its internal factors.

Having long foreseen the unsustainability of its export-driven growth since the 1990s, China has been gradually reducing its dependence on foreign trade for almost 10 years.

Not only has its total volume of exports been declining; the ratio between exports and total GDP fell from 37 per cent 10 years ago to around 20 per cent in 2015, according to the World Bank. Although this is higher compared to the US, it is still lower than the level of many trading nations in Asia and Europe.

Admittedly, by volume, China’s export of goods to the US is still much larger than its imports, at $482 billion versus $116 billion in 2015, the Office of the US Trade Representative reported. But a large proportion of its exports are made for US consumer brands.

Should US businesses discard their partners in China and ship production home, that would be worth around 2 trillion yuan ($292 billion). But this represents less than 3 percent of China’s total GDP of some 74 trillion yuan in 2016.

It may not be hard for China to redirect that amount of productivity toward other markets, domestic and foreign. Chinese society has changed from the way it was 20 years ago. A rise in income levels in coastal cities should have created enough middle-class consumers to spend more, which is also evidenced by the increased spending of Chinese tourists abroad.

With smart management, China can better utilise this new potential and provide its middle-class consumers with better quality goods and services.

One good example is the rapid expansion of the country’s high-speed rail network. In the beginning of the rail modernisation programme, many people doubted its commercial viability. And, in fact, many of the long, hugely expensive railway lines cannot be expected to generate a profit in just a few years.

But the nation’s consumer behaviour has evolved at a rapid pace, with increasing numbers of people willing to spend holidays and weekends on speedy train rides to cities other than their hometowns.

In 2015, by serving 4 billion visitors, the nation already generated 4 trillion yuan in tourist revenue, a much larger amount than its merchandise trade surplus with the US.

Some major high-speed railways have also been completed to link the more developed coastal cities with the scenic towns in China’s mountainous western regions. With good security protection and more entrepreneurial initiatives, the country’s high-speed rail economy alone could generate enough services, if measured in monetary terms, to compare with the GDP of a medium-sized country.

So, in the face of Trump’s trade war, the best defence that China can have is not to get distracted by his attacks and deceit, and to be steadfast in pursuing its own economic reform. This is the most effective way China can win any future trade war.

The government should do a better job of not only investing in large infrastructure, but also in protecting small enterprises and private initiatives — with good laws and policy terms. It should start acting now.

Ed Zhang is an editor-at-large of China Daily.

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