With the number of China's high-income earners increasing rapidly, the domestic demand for luxury goods has been on the rise. Domestic supply will not be able to satisfy the demand. Imports of such products are expected to increase gradually.

Moreover, China's agriculture is limited by the country's meager per capita farmland and water resources. As a result, its agricultural production, which depends on land and water, is at a disadvantage compared with imported products.

Imports of agricultural products, therefore, will increase in the long run.

China used to encourage exports because it lacked foreign exchange capital and needed to protect its fledgling domestic industries and create more jobs.

Now that it has become a major manufacturing and trade power, China no longer needs such a lopsided trade strategy.

The most important principle it should uphold is the creation of a more market-based, fair and neutral trade environment.

Policymakers need to have a balanced view toward the relationship between export and import, casting off the traditional mentality that discourages imports.

The State also needs to devise favorable tax policies for the import of necessary resources such as iron ore and advanced equipment and products that are crucial for China's domestic industrial development.

Apart from lowering the tariffs on these imports, China should consider cutting the value-added tax and other taxes and fees on these products.

China also needs to gradually lower tariffs on high-end consumer goods and luxury goods to help the balance of trade.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation, attached to the Ministry of Commerce

(China Daily 04/06/2007 page10) 

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