China too reliant on exports
(Agencies)
Updated: 2005-06-02 13:50

China's economy has become too reliant on exports to fuel growth, and authorities should ease credit curbs somewhat to spur domestic demand, a top government think-tank said in a report published on Thursday.

The report by the State Information Center, carried in the Financial News, was the latest sign that influential Chinese economists are starting to worry about the country's ballooning trade surplus.

"If world economic growth or exchange rate policies change or undergo adjustment, the danger of a big drop in economic growth may increase," the newspaper quoted the report as saying.

China should "moderately reduce the degree of credit tightening to bring about sustained, appropriate and stable growth in domestic demand, allowing the economy to maintain its vigor," it quoted the report as recommending.

Worried that a handful of overheated industries could upset the country's overall economic health, Beijing has implemented a raft of credit curbs and other cooling measures since mid-2003. "The report suggests that official policy should aim to appropriately control the momentum of expanding external demand and increase the pace of expansion in domestic demand," the newspaper said.

The recommendation comes against a background of growing international unease over China's prowess in low-cost manufacturing, exemplified by curbs that the United States has imposed on Chinese textiles. The European Union is poised to slap on similar restrictions unless Beijing acts of its own accord.

VULNERABLE

China racked up a $21 billion trade surplus in the first four months, compared with a deficit of $10.7 billion in the same period last year.

The turnaround has given ammunition to trade partners such as the United States in their complaints that the yuan's decade-old peg of near 8.3 to the dollar undervalues the currency and gives Chinese exporters an unfair advantage on world markets.

The State Information Center report is not the only recent expression of concern that China has too many eggs in the export basket.

"Our exports are too high right now, making the economy more susceptible to external shocks," Yu Yongding, a top academic and member of the central bank's monetary policy advisory board, was quoted this week as saying.

Foreign Exchange, a magazine published by China's foreign exchange regulatory body, also quoted Yu as saying that China's ability to attract foreign investment -- to the tune of $17.5 billion in the first four months -- had its downside.

"Although foreign direct investment has produced positive effects on economic growth, FDI is actually a type of debt. After attracting foreign capital the profits must be shared, a price that is extremely high in reality," Yu said.

More than half of China's exports are produced by foreign-funded ventures.

He Fan, a top economist with the Chinese Academy of Social Sciences, said China needed an "import strategy" to broaden the kinds of goods it purchased from abroad and to give it more clout in global trade affairs.

"Historically, the status of great nations was determined not by exports. Conversely, the bigger the domestic market, the bigger the imports, and the greater say one has in the international economy," the magazine quoted He as saying.