Filling in the Gap

Chinas foreign trade grew 3.4 percent in 2014， making it the third year in a row that China has missed its trade growth target. According to data released by the General Administration of Customs on January 13， foreign trade totaled$4.3 trillion last year， up 3.4 percent from 2013. Exports increased 6.1 percent to $2.34 trillion， while imports increased 0.4 percent to $1.96 trillion. The foreign trade surplus widened to$382.46 billion.

Some external factors may be attributed to faltering foreign trade， say， the plunge of the prices of petroleum and bulk commodities. But more importantly， its a sign that foreign trade has become a vulnerable part of the Chinese economy. Chinas foreign trade index， a barometer of future trends， slid to 40.1 last December， its third consecutive monthly drop and indicative of a bleak outlook for foreign trade in the first quarter of 2015.

The Chinese economy had been exportdriven since the Asian financial crisis in 1997. Foreign trade used to be a powerhouse to the broader economy， resulting in $4 trillion in foreign exchange reserves. However， after the outbreak of the global financial crisis in 2008， foreign trade has been losing steam in China， with sluggish exports and grim imports. A once powerful growth engine has become an Achilles heel for the economy， arousing much concern in the country.

It would be unrealistic to expect a stunning recovery of Chinas foreign trade， despite recoveries in developed countries. Foreign trades poor performance in the Chinese economy may last for a considerable time to come. If the gap caused by bleak foreign trade cant be filled in by other growth drivers， Chinas economic growth will be greatly inhibited.

To that end， investment is playing its role. At the end of last year， the National Development and Reform Commission gave the green light to nearly 7-trillion-yuan（$1.13-trillion） worth of infrastructure investment projects， such as railways and airports. Its expected to shore up growth by filling in the blank left by sluggish foreign trade.

Infrastructure construction projects can boost growth in the short term， but the effect cant be sustained long term. Metaphorically speaking， the process is like getting a car started. Whether the car can keep going depends on other elements being able to support its functioning， such as gas and engine conditions. In a similar fashion， whether productive investment is effective depends on whether it can activate market demand and consumption.

Therefore， infrastructural investment can only serve as short-term stimulation to the economy， but the real growth momentum should come from demand and consumption， especially effective productive consumption and living consumption. Adjusting foreign trade strategies， changing the national mindset and searching for new approaches accordingly should all be top priorities.

As far as consumption is concerned， the biggest problem is a lack of spending power and confidence. The former is a result of insufficient employment opportunities and relatively low income， whereas the latter is a result of sky-rocketing housing prices， expensive medical care and fast-increasing educational expenditures.

Sluggish living consumption will result in a lack of momentum in productive consumption， thereby limiting consumptions contribution to the broader economy. It may be difficult for consumption to fill in the gap left by weak foreign trade in the short run.

In a nutshell， there are three means to offset recent lackluster foreign trade： first， infrastructure investment in the short term and productive investment in the long run； second， innovation and adjustment in foreign trade to shift from low-end manufacturing to high-end equipment and technology； finally， consumption growth， which represents the intrinsic source of the economys momentum.