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Andrey Ostrovsky: "China will make external economic ties with the SCO countries"
30.01.2009 09:29
Andrey Ostrovsky, Vice Director of the Far East Institute of the Russian Academy of Sciences, Director of the Centre for Economic and Social Problems in China and East Asia

The deepening global economic crisis issues a lot of challenges to the SCO countries, including China: how will the situation in the global market affect it, how true is China’s economy assessment in new conditions, made at the XVII CPC Congress in October 2007? To be more precise: will the GDP growth rate change, what transformation will happen in foreign trade of China, what impact will the current crisis have on Chinese financial market (banks and equity market) and home market (customer demand and prices)?

According to main economic indicators – the volume of GDP and foreign trade, attracted foreign investments, gold and currency reserves – China already represents the force, all world countries have to take into account. At present it ranks fourth by the volume of GDP – 27.5 trillion yuans, and volume of foreign trade averaged out $2100 billion. Over a period of time between the XVI and XVII CPC Congresses, in 2003-2006, annual average growth rate of GDP in China reached 10,4%, what exceeded average world indicator by 7%, and during 2007– by 11,6%.

After RPC’s entry into the International Trade Organization, volume of foreign trade increased almost by four times, and first of all – thanks to the growing export. In 2007 rapid growth of the volume of foreign trade and significant surplus of exports resulted in increase of excess turnover and pressure on juan. Besides, such a situation reflects insufficiency of home demand, strains resources, does not favour economic macro-regulation and increases economic risks.

In 2008 there was no slowdown in GDP growth, and its increase averages 10% per annum. This year the slowdown in GDP growth is expected to reach 8%. At present China’s crisis is still practically not significant with the exception of individual sectors of national economy (textile and light industries), as well as some seaboard provinces (e.g., Kwangtung, Jiangsu, Shandong), being under strong dependence on volume of exports of products manufactured by them. The State Council of the PRC worked out a programme consisting of ten areas, for development of which the government assigned 4 trillion juans. It was represented at the meeting of the State Council of the PRC in November 2008. First-priority areas became agriculture, provision of infrastructure and new high technologies, construction of economical residential space. These spheres, as predicted by Chinese authority, will involve other ones and ensure the necessary home demand increase. In addition to it, in China the People’s Bank refinancing rate was reduced (it fulfills a function of the Central Bank) to 3% per annum, and average Lombard rate – to 5.58%, which ensures favourable conditions for the programme implementation.

As far back as 2007 China’s government assumed measures to reduce the volume of foreign trade and exports. A law was passed setting equal income tax rates for all businesses, which reduces expected profit level for the enterprises with the participation of foreign capital. Since June 2007 in China tax refund rates for export products began to be reviewed, which affects first of all, export of primary goods.

In the sphere of foreign economic relations China will scale down the volume of foreign trade with the United States and EU countries. However for the time being Chinese goods export to the USA still keeps rising due to low prices for their products, which attracts American businessmen. So the USA is still faced a question how to reduce a growing deficit in foreign trade with China.

PRC is now actively developing trade with ACEAN countries and economically developed countries and APR territories – Republic of Korea, Japan, Taiwan and Hong Kong, that turned out to be susceptible to world financial crisis least of all. Thus China got a chance to save yuan from the American dollar and turn it into reserve currency in the countries of South East Asia and East Asia.

In today’s situation China will enliven trade and economic relations with the SCO countries through import of energy resources and export of both engineering and consumer finished products. Concurrently, for successful advance of all the projects for energy resources import, China intends to invest in development of the SCO countries infrastructure – Kazakhstan, Kirghizia, Tajikistan and Uzbekistan (roads, oil- and gas pipelines, storage rooms).All these projects will be implemented by PRC both on bilateral basis and within the scope of SCO.

In spite of bright future of Russian-Chinese trade development (in 2007 the volume of foreign trade was $46 billion against $32 billion in 2006) the world financial crisis negatively affected its dynamics. According to estimates of the RF trade representative in PRC Sergey Tsyplakov, its volume in 2008 was $48-50 billion. At present Chinese prices are lower than Russian ones practically for all commodity items in consequence of state support of key industries. It concerns those spheres where product pricing also determines to a large extent behavior of prices for other goods. But as concerns Russian business, practically any sphere is promising for it.

One of the ways of Russian-Chinese relations development is frontier trade, however it is required to improve its infrastructure, including updating of border-crossing points, construction of auto-roads, Amur, Argun and Ussuri bridges building, as well as rail transport development and formation of necessary bank infrastructure, capable to ensure free exchange of yuan into rouble and vice versa on the whole territory of Russia and China. Russia needs a state support to form this infrastructure on the territory of Far East and Siberia, to ensure coordination of regional development strategy between the Russian Far East and Siberia and the old industrial base of the Northeast of China, as well as within the framework of SCO.
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