context: The PRC’s trade surplus has been increasing, with the figure in 2022 surging almost 2.8 times compared to 2012, reaching US$ 877.6 bn. The latest customs data show a rise of nearly 14 percent y-o-y in the trade surplus in June 2023. While this increase could be due to export growth, it may also be the result of dwindling domestic demand and economic decoupling. A significant trade surplus can also create tensions with other trading partners. To promote balanced and sustainable trade growth, Beijing will likely work to reduce the trade surplus by boosting imports.
The PRC needs to proactively reduce its trade surplus to ensure sustainable trade growth, says Huo Jianguo 霍建国 China Society for World Trade Organisation Studies vice-director. Doing so could stimulate both domestic investment and consumption while alleviating international tensions and pressures, he notes.
Huo pinpoints four reasons behind the recent upswing in the trade surplus, which he labels as 'passive' in nature and potentially detrimental to the PRC's economy
- the PRC's advanced manufacturing capacity with complete supply chains
- the strong export capacity of private enterprises in NEVs (new energy vehicles), solar panels and lithium batteries
- the rise in US dollar prices coupled with the depreciation of the RMB, both of which have inadvertently benefited PRC exports
- the impact of US sanctions on high-tech exports to the PRC
He makes several policy recommendations, including
- 'boldly' broaden the import landscape and implement reductions in import tariffs
- encourage and support the import of advanced manufacturing equipment
- especially equipment used for environmental protection and energy conservation
- the PRC is facing the challenge of achieving carbon peaking and carbon neutrality, so the extensive use and upgrading of energy-saving equipment are essential to achieve this goal
- the PRC needs to transform and upgrade its industries and exports to be more competitive internationally
- relax import restrictions for high-end consumer goods
- lowering tariffs and consumption tax