Guo Shuqing, director of the State Administration of Foreign
Exchange (SAFE), called for strong measures to adjust China's
foreign trade and investment policies to control the downsides of
unbridled growth.?
"Indiscriminate support of exports and foreign capital influx
has created short-term economic problems, including excessive
speculation in the property market and the economic decoupling of
the fast-growing coastal areas with the rest of China," Guo said in
an interview with China Daily.
On Friday, Guo was named candidate chairman of the China
Construction Bank after the bank's former Chairman Zhang Enzhao
resigned earlier last week.
Guo's comments come at a time when the government is vigorously
pursuing a "scientific approach" to achieve sustained development
and are all the more significant because it indicates the
government's resolve in addressing the fundamental issues being
discussed among top economic policy makers.
Economists have long been calling for a shift in emphasis to
facilitate the transformation of China from a low-cost
manufacturing base to a world industrial power.
"We should gradually reduce the preferential treatment to
exports and seriously review our foreign investment policy," Guo
said.
Excessively favorable policies towards exports and foreign
investments made sense in the years immediately after the country
adopted its opening-up policy in 1979, he said.
But over time, such policies have fostered the erroneous belief
that has led to the unconditional support for foreign investment
and exports to achieve a consistent trade surplus.
"This mentality should be corrected," said Guo, an economist who
used to be in the central government's bodies for economic
restructuring.
He said exports should not be given a superior position in the
country's economic development agenda than imports.
"And trade surplus is not necessarily a good thing all the
time," he said.
China's exports contributed much to the coastal area's
prosperity.
However, after so many years, exports with relatively higher
added-value, especially those with Chinese-owned intellectual
property rights, account for a persistently low proportion of total
exports, he said.
"This kind of export growth is not sustainable," he said.
Meanwhile, a relatively conservative approach to imports has the
effect of discouraging domestic manufacturers from upgrading their
production facilities with imported equipment and technology, Guo
said.
Policies towards foreign investments have shared some of the
same shortcomings with that of trade. As a result, a host of
explicit and implicit advantages have been introduced overtime for
foreign-invested enterprises.
The foreign-related segment of the economy, which constitutes
key parts for the economy in coastal areas, has gradually drifted
away from the rest of domestic economy. These foreign-funded
enterprises have more transactions within itself and with foreign
economies than with domestic firms.
Many foreign-funded enterprises are actually a link in the
industrial chain that also includes the United States, Japan, and
other East Asian economies.
"More than half of China's exports and overwhelming majority of
high-tech manufacturing and trade are generated by foreign
companies," Guo noted.
This contributed to the regional imbalances between coastal
areas and the inlands, he said.
Unchecked increases in exports and foreign investment are also
partly responsible for China's trade surplus and colossal foreign
exchange reserves.
Apart from their well-known merits safeguarding the country from
financial crisis being the most well-known huge reserves can cause
problems. "For one, it reduces the independence of the country's
monetary policy," said Guo, who also serves as a deputy-governor of
the , the central bank.
During the past few years, the central bank has bought the huge
foreign currency holdings of commercial banks, which is the result
of the trade surplus and investment inflow. To buy in the foreign
currency, the central bank has to release huge amounts of
renminbi.
This conflicts with the central bank's agenda of controlling the
increase of money supply.
The country's trade surplus and huge reserves actually reflect
imbalance structure of domestic economy, which needs a holistic
cure.
"China needs a strategy for more of a balanced development," Guo
said.
He said the country should reduce energy-consuming exports and
exports of resources China is short of. It should also control
exports of generic manufacturing goods. At the same time, the
country should urge developed countries to relax restrictions on
their technology exports to China and improve quality of China's
imports, he said.
As to investment, policies for domestic and foreign enterprises
should be unified. Restrictions should be imposed on foreign
investments in industries that use low-level technology but
generate high pollution; on those that produce products
oversupplied in both domestic and international markets; and on
investments that are easy to lead to speculative activities and
property bubbles, he said.
According to Guo, the latest sign of unwanted foreign
investments is seen in the real estate and financial markets.
He said SAFE officials have spotted foreign funds that entered
China disguised as money for trade or direct investment purposes
but ended up being used to buy renminbi-based financial assets and
property.
"We found the phenomenon of one single (overseas) person buying
up to 100 houses in coastal cities," he said.
"This is apparently speculative activity," he said.
The speculators were betting on an appreciating renminbi. Their
massive purchase of houses has contributed to the surging housing
prices in coastal areas.
(China Daily March 19, 2005)