Worries of the Trade Champion

The General Administration of Customs recently announced that China outstripped the United States in international cargo trade last year. For some， this implies that China has risen to become the largest trading country on the globe.

It is arguable that Chinas great performance in trade comes at the expense of economic welfare and the environment. Moreover， since heavy regulation has severely undermined the Chinese capacity for self-governance and pricing efficiency， its hardly possible for China to attain a predominant position in international trade in the short run. Beyond that， China is still lagging far behind the developed world in the trade of high value-added commodities， services and intellectual property.

To secure its future dominance， China still has to overcome a cluster of challenges. Generally speaking， net exports is equivalent to exports of adjusted net savings， which measure the true rate of saving in an economy after considering investment in human capital， depletion of natural resources and environmental damage caused by pollution. The aging of Chinas population has caused the scale of adjusted net savings to shrink， leaving domestic demand not fully met. Therefore， China should allow a shift from trade surplus to current account deficit， with increasing dependence on imports of key resources. It should also absorb large amounts of foreign funds through capital and financial accounts to offset the shortage of adjusted net savings.

However， this may not work. For one thing， the ecological system has been too fragile to support the extensive export model adopted in the past. Against the context of an aging population， the export of adjusted net savings indicates inflation as well as asset bubble expansion in China.

For another， international trade is edging away from commodities to services and intellectual property， which happen to be Chinas weaknesses. Progress in 3D printing， digital technology and mobile storage are reshaping the international economic and social ecology in terms of manufacturing and transaction.

As a result， information asymmetry will be improved， market transaction cost will be lowered， production and consumption will connect to one another more closely， and customized products are gaining popularity. All these testify to the fact that standardized mass production can no longer adapt to consumer demands in the days to come.

Lastly， free trade agreements that focus more on service and intellectual property， like the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership， will speed up reforms on the international trade system， and then erode Chinas advantages in cargo trade.

New free trade agreements as well as surging labor costs and housing prices in China may force some trade companies to move out of the country to regions with lower costs. Meanwhile， due to the adoption of new technology and changes in market demands， Chinas exports can barely benefit from the economic recovery in Europe and the United States.

In short， priority should be given to eradicating factors that may cramp Chinas economic growth by deleveraging and carrying out reforms， rather than blindly pursuing grandiose figures.endprint