Great benefit for U.S. from Sino-U.S. trade co-op

BEIJING, Jan. 17 (Xinhuanet) -- China Daily on Monday issued an commentary on Sino-U.S. trade cooperation.

Chinese market "cash cow" of the U.S.

Since the beginning of the new year, American companies one after the other have proposed their new policies of investing in China. General Electric Company (GE) will invest more than 2 billion U.S. dollars to sharpen its research and development in China with several new innovation centers and joint ventures; P&G has announced that they will in five years add another 1 billion U.S. dollars in China; Ford Motor Company said they would further expand their production this year; Caterpillar Inc will build new joint ventures to boost their spare parts business in China; Starbucks has confirmed that their coffee shops in China will reach as many as 1,500 by 2015; The Carlyle Group will raise money specially to be used in China.

Intel China is no exception. According to Ge Jun, Executive Director of Intel China, the Chinese government is pushing the integration of the “three nets” (namely, telecom, computer and cable TV networks) and the development of Internet of Things (IoT). This undoubtedly will provide new opportunities to the U.S. IT industry. Since Intel's settlement in China in 1985, China has become its second largest market outside of its homeland.

According to statistics from China's Ministry of Commerce, by the end of 2010, the U.S. had invested in more than 59,000 projects in China with a total of 65.22 billion U.S. dollars. China is becoming a “money spinner” to U.S. companies. A survey by the Chinese American Chamber of Commerce said that 71% of the U.S.-funded ventures made profits in 2009 and 46% of them gained a higher profit ratio in China than they did in any other country.

Since joining the World Trade Organization (WTO) 10 years ago, all the 100 service institutes China pledged to open have accepted U.S. investment. In areas such as accounting, banking, insurance, security and commerce, U.S. companies are making big money and are running very well.

Currently, China is the second largest trade partner and the top growing export market of the U.S.. According to Chinese Customs, the volume of Sino-U.S. trade in 2010 was 385.34 billion U.S. dollars with a nearly 30% annual increase. In 2010, China's import volume from the U.S. was 102.04 billion U.S. dollars with an increase of 31.7% year–on-year.

Looking back, we can be clearer about the surge of U.S. exports to China. According to U.S. Department of Commerce statistics, from 2001 to 2008, U.S. goods exports to China rose from 19.2 billion to 71.5 billion dollars , an increase of 272 percent, while U.S. exports to other countries and regions increased by only 72 percent during the same period. In the service trade, the U.S. has retained a surplus of service exports to China. In 2009, the U.S. had a trade surplus of 7.43 billion U.S. dollars, about four times that of 2001.

By enjoying a rapid increase in U.S. exports to China, the U.S. has gained the dividends from China's economic growth. All the states have benefited in real terms, making China appear on the top five export markets list in 40 states out of 50. Over the past 10 years, there has been a 330 percent increase in U.S. machinery and agricultural produce exports to China, far beyond the increase of 29 percent in its exports to other regions of the world. China has become the largest single overseas market of U.S.-produced soybean and cotton as well as an important export market for cars, airplanes and other machinery products. A report from the United States-China Business Council (USCBC) in 2010 said, “China continues to be an important export destination for U.S. manufacturers and farm owners during the global economic recession.” Zhou Shijian, a senior researcher with the Center for U.S.-China Relations (CUSCR), Tsinghua University, also acknowledged that without a surge in exports to China, the U.S. President Barack Obama's ambitious plan of doubling U.S. exports over the next five years seems hard to achieve.

The U.S. benefits from trade and economic cooperation with China – from consumers' interests to job opportunities

U.S. beneficiary of Sino-U.S. trade cooperation

Besides direct benefits from exports to and investment in China, cooperation with China is also a boon for the U.S. macro economy, as is demonstrated by U.S. consumers' interests.

Statistics show, of all China-made products entering the U.S. market, daily consumer goods such as clothes, shoes, socks, toys, suitcases and electronic products account for about 75 percent. These quality products with low prices have greatly improved Americans' lives, expanding their choices while shopping and bringing real benefits, especially for low-income groups. It has also led to a relatively low inflation rate for the U.S. economy faced with pressures of fiscal and trade deficits.

According to a research by the U.S. company Morgan Stanley, each American could save more than 300 U.S. dollars in their expenses by purchasing goods from China in 2009. According to a study by the U.S.-China Business Council, the gross domestic product (GDP) in the U.S. should have risen another 0.7 percent by 2010 due to its increasing investment in trade to China, while the prices should have fallen by 0.8 percent. Adding the two research results, the disposable income of each U.S. household should rise 1,000 U.S. dollars every year. “Goods from China meet the demand of American consumers and will help stabilize the U.S. market price, reduce the risk of inflation and maintain economic stability,” said Liu Haiquan, head of the Comprehensive Department of China's Ministry of Commerce.

Sino-U.S. economic and trade cooperation have also effectively increased U.S. jobs. U.S. Secretary of Commerce Gary Locke said in a speech given to the U.S.-China Business Council in January last year, “If we just boosted our exports to Asia by one percent, that would support another hundred thousand (10 million)new jobs in the United States.” Accordingly, U.S. exports to China from 2001 to 2008 provided the country with 2.57 million new job opportunities. Direct investment from Chinese companies to the U.S. has also increased dramatically in recent years, making positive contributions to local employment. Some Chinese giants such as COSCO, CNPC, Lenovo, have brought a lot of employment opportunities as well as economic and social benefits to local residents in the U.S.. The Haier Group created thousands of new jobs for Camden City since its establishment of industrial parks in South Carolina in 1999. In every ten Camden families, you can find at least one person working as a Haier employee. The city thus developed into a “hometown” of household appliances with an annual output of more than 20 million products. The WanXiang Group had nearly 30 projects invested in the U.S., creating nearly 5,000 new jobs. In the year 2009, when many U.S. enterprises cut jobs, the WanXiang Group created a number of new jobs for Illinois through their new investment projects.

Sino-U.S. economic and trade cooperation is the result of the increasingly international nature of the globalised trade market. The United States could use this to their own benefit, combining their advantages in financing, technology and management with China's abundant labor resources.

Therefore, the international competitiveness of U.S. products and U.S. enterprises could be improved and the U.S. industries' share in the international market could be expanded. At the same time, the move creates the conditions for U.S. industries' transfer to high value-added sectors. Take computer manufacturing for example, China produced 150 million computers in 2008, with almost all the chips used in the central processors imported from U.S. enterprises such as Intel or Advanced Micro Devices.

China is now the largest holder of U.S. Treasury bonds. According to statistics released by the U.S. Department of the Treasury, as of October 2010, the balance of U.S. Treasury bonds held by China reached 906.8 billion U.S. dollars. During the global financial crisis, China did not trim its holdings of U.S. treasury bonds, but increased them. The move is important for the United States if it is to maintain a stable and mobile financial market, ease its credit crunch and promote trade financing, beneficial for the country's goals in macroeconomic regulation. A report released by the U.S. Congressional Research Service Bureau in July 2009 pointed out that if China did not purchase U.S. bonds on a large scale, U.S. interest rates would increase by 0.5 percentage points. Accordingly, the U.S. can save itself 61.6 billion U.S. dollars on bond interest payments.

China has a huge favorable balance of trade? The exchange rate of RMB is undervalued? Be rational when listening to discordant voices from the U.S..

To be rational over biased views

Though having gained huge profit from Sino-U.S. economic and trade relations, the U.S. has been questioning China's favorable balance of trade and the undervaluation of the RMB exchange rate. What are the true facts?

Based on past statistics, China has only had favorable balance of trade for a short time, and it usually accounted for less than 3% of GDP. Only until 2005 did the favorable balance of trade increase. Despite this, the figure was much smaller than that of major trading nations such as Japan and Germany. For example, since 1952, Germany has had 58 years of favorable balance of trade, which was up to 8% of GDP at its highest. Some Gulf countries have also had a favorable balance of trade for a long time because of a lack of resources. Differences over statistics calculation have also led to the overrated unfavorable balance of trade of U.S. to China.

The fact that China has had a favorable balance of trade against the U.S. does not harm the interests of the U.S.. Not only did China profit from it, but U.S. companies also did, because of from the added value of imported products from China.

American think-tank CATO Research Institute pointed out in its report in 2010 that the international division of labor between China and the U.S. is like a “smile curve” –the U.S. has dominated the prophase manufacturing process such as high-profiting trade marks and concept designs, and final phase service including logistics, marketing and market developing; while China has only undertaken low added value middle-phase manufacturing. The U.S. is the bigger beneficiary from Sino-U.S. trade according to the profitability ratio. The added value of the products which China has made only accounts for 1/3 to 1/2 of the total export volume to the U.S..

According to the Economist, an iPod tagged “made in China” is sold in developed countries (“America”) at 299 U.S. dollars, of which “Only 4 dollars stays in China with the firms that assemble the devices, …160 dollars goes to American companies that design, transport and retail iPods.”

The foreign exchange rate is another hot issue in Sino-U.S. economic cooperation. Some Americans believe the currency value of Chinese RMB is severely underestimated, and the underestimation is the main cause of imbalance of bilateral trade. They hope that with the RMB's appreciation and the U.S. dollar's depreciation, U.S. exports and the economy will be boosted.

But in fact, RMB exchange rates have increased by about 25% since the reform of the exchange rate regime in 2005. RMB has increased to a larger extent compared to the U.S. dollar, euro, Japanese yen and sterling. It is totally groundless to assume US's trade deficit against China has anything to do with RMB's value being underestimated. China's foreign trade surplus surged from 2005 to 2008, during which time the RMB had appreciated by 21.2% against the U.S. dollar, said He Weiwen, dean of Sino-U.S. Commerce Research Center at University of International Business and Economics. Why does this phenomenon exist if the RMB is underestimated?

There are other cacophonies. The U.S. has repeatedly heckled China with anti-dump and anti-subsidy investigations, protection of IPR and China's policies of independent innovation. Many more frictions in bilateral commercial ties have occurred lately. If such problems are not solved, they will have a direct impact on the interests of U.S. companies and U.S. people, as well as hindering the economy of “made in China”.

An example is the special protection of tires, launched in 2009 against China. What was the consequence, then? According to data from the U.S., the price of U.S.-imported tires increased by 30% in the first half of 2010, whereas the jobs offered by its tire industry dropped by 10% in the first five months of the year.

Meanwhile the U.S. controls exports to China in the high technology industry. The control causes U.S. enterprises to lose many opportunities, because China has to import the products from other countries. According to data from China, the value of high technology products imports grew from 64 billion to 309. 9 billion dollars during 2001-2009 and the average growth per year was 48 percent. However the proportion of U.S. products fell from 18.3 percent to 7.5 percent. If the U.S. keep the level at 18.3 percent, it can increase the value of exports to China to 33.5 billion dollars from 2009 .

Wide Prospect, Deep Cooperation

- To develop a win-win China-U.S. Commercial Relationship

The U.S. is the largest-scale developed country; China is the largest-scale developing country and the largest emerging market. The commercial cooperation between China and U.S. produces giant benefits. The gap in development between the two countries and win-win cooperation are the basis for the steady development of a China-U.S. commercial relationship. During the process of globalization, China and the U.S. have began to share many benefits. A win-win China-U.S. commercial relationship is good for the people of the two countries and will continue to cement and push the bilateral relationship.

There is an opportunity for cooperation on trade between China and the U.S. . China is currently accelerating in terms of industrialization and urbanization. The mode of development is being regulated. The long- term goal is to widen the domestic need. All those elements will cause giant investment need and consumption need. China has the highest number of exports and the second highest number of imports in the world and may become the largest domestic consumption market. That means better opportunities and more development opportunities for the U.S.

Gao Ruibin, president for Motorola, Inc. China said that Motorola have invested 1.5 billion dollars in research and development in China and they have 2700 people working on this. “The better China develops, the more chances for us. Motorola has an optimistic view on the China market and hopes to take part in the innovation in China.” Gao said. It is reported that many multinational enterprises such as GE, IBM and Coca Cola all take part in and support China's national stratagems such as the change in economic development, energy saving and carbon emission reduction.

"The Chinese government will continue the trade policies of maintaining a basic balance between imports and exports to further deepen the opening up, reform and innovation of China and will make it easier for domestic and foreign investors by creating a more open and optimized investment environment for them. Foreign enterprises including those from the United States, will share the growing market pie with Chinese enterprises, “an official with China's Ministry of Commerce said.

Experts say that the great achievements of Sino-U.S. economic and trade cooperation are the result of much hard work. The United States should adhere to the concept of free trade and oppose protectionism in all forms of trade and investment.

It should re-evaluate and relax export control measures against China as soon as possible and properly carry out a foreign investment review to reduce unnecessary constraints and promote the investment and cooperation.

Experts also suggest that the United States and China should continue to strengthen macroeconomic policy coordination so as to jointly promote the balanced and sustainable development of the world economy.

Now is a critical period for the deepening development of Sino-U.S. economic and trade relations. The healthy development of China-U.S. economic and trade relations will help to promote stable economic growth and the global economic recovery. And only from a strategic and long-term perspective and through the continued promoting of Sino-U.S. economic and trade ties, can greater improvements to the lives of the people from both counties and even the world be achieved.

At a new historical start, we are full of confidence in the future of economic and trade cooperation between China and the United States.