embracing imports

a new trade mantra

China plans to import more—a lot more. The aim is to secure key economic goals: transition to higher-end manufacturing, and to consumption-led domestic growth. Some advisors have recommended pursuing trade deficits.

The November 2018 China International Import Expo (CIIE), a centrepiece announcement of the 2017 Belt and Road Forum, is the first major step in this strategy. Countries that want to sell more into China's domestic markets are lining up for exhibition space. But trade partners must prepare to manage the geo-economic challenges associated with the move to imports: Beijing is not looking for a new role in the established global trading system, but a leading role in a new system and global order envisaged by its own strategists.

'well-structured' imports

China's meteoric economic rise was fuelled by exports. Traditionally wary of imports, its trade policies have been criticised as 'mercantilist'. But in a change confirmed in late 2017, Beijing downplayed the pursuit of trade surpluses in favour of a new, pro-import strategy termed 'promoting balanced trade'. As China manages its relationship with a protectionist government in the US the slogan has immediate diplomatic value, but it is not a response to Trump's demands. It is a strategic decision years in the making.

A shift from net-export to net-import began in late 2016, according to a May 2017 interview with Wei Jianguo 魏建国, former vice minister of commerce. In 2017 exports rose 10.8 percent to C¥15.33 tn. But imports surged 18.7 percent to C¥12.46 tn. The trade surplus shrank by 14.2 percent. Overall foreign trade grew 14.2 percent y-o-y to C¥27.79 tn, ending two years of continual falls.

Following a year of signalling, the new 'balanced' trade strategy was confirmed at the Central Finance and Economic Work Conference in December 2017. Huo Jianguo 霍建国 calls this a prototype for future trade policy. Huo, former president of the Ministry of Commerce International Trade and Economic Cooperation Research Institute, says that the first step is to narrow the trade surplus. Given the current international and domestic environment, emphasising trade surpluses is outdated. Expanding imports, urges Huo, will increase export competitiveness and add value.

Zhang Yansheng 张燕生 China Centre for International Economic Exchanges chief researcher argues that China should expect a trade deficit within five to ten years. He recommends that Beijing plan now to deal with the resulting balance of payments issues and concomitant changes needed for macroeconomic regulation and control.

Imports are to support a major domestic economic transition. Low standards and cheap labour are no longer competitive advantages; China's natural resources are overstretched and its ageing population is joining the ranks of the more demanding middle class. Instead, asserts Wang Yang 汪洋, newly-promoted Politburo Standing Committee member (and chair of the CIIE preparatory committee), development must concentrate on innovation and value creation through high-end services, brands and technologies. Imports will supply what China needs to climb the value chain and keep developing its economy. As Minister of Commerce Zhong Shan 钟山 puts it, 'well-structured imports' are needed for quality production and expansion of the service sector.

from globalisation winner to leader

The world, Beijing believes, is on the cusp of a transition from a trade system dominated by multinationals and distributed supply chains, to one dominated by borderless information flows. China aspires to lead the creation of new governance for this new trading order. Controlling access to its domestic market yields huge leverage in shaping global trade rules.

This strategy sees globalisation as progressing in distinct waves, each driven by new technologies and economic structures. The last wave began in the 1980s, as improved communications and transportation technology allowed MNCs to create global supply chains, integrating the developing world into global production networks and creating truly transnational corporations outside the control of national governments. Created to manage tariff and customs systems, the WTO typically dealt with moving physical inputs and goods.

China did well under this system, developing from one of the world's poorest countries to soon its largest economy; but it is dissatisfied with the US-sponsored framework. In a 2017 speech at Davos, Xi Jinping cited the current system's lack of 'representation and inclusiveness', its outdated trade and investment rules. He promised that China will lead the creation of a better system, an 'open world economy'.

Beijing's trade advisors see a strategic opportunity for China to write the new rules. Anti-globalisation movements in the developed world prove, they contend, that the existing economic order can no longer deliver growth. Leading advisor Quan Heng 权衡 Shanghai Academy of Social Sciences predicts that a new cycle, driven by digital technology and biological and genetic engineering, will take off by 2030. In this emerging economy, value lies in platforms and data, not goods. The existing tariff- and border-focused model of trade governance will be irrelevant in this world. China is not the only country preparing to manage a new kind of trade: global recognition that 'behind the border' regulations are becoming central to trade has motivated recent rounds of trade negotiations, including TPP and TTIP.

As major economies flirt with protectionism, observe strategists, the world needs markets to sell to, making imports a source of influence. Zhang Yansheng, another trade deficit advocate, describes China's hunger for imports as a 'global good', underlining its value to the world. Importing more will give China influence in international pricing, adds Li Shuangqing 李双青 of Beidahuang Food Group, one of China's largest agricultural producers. Informed by these ideas, Beijing has put developing new rules about trade on the agenda for the CIIE. MofCOM describes the fair as a global platform for 'countries at various stages of development to exert national influence and deepen trade ties'. Zhao Ping 赵萍 China Council for the Promotion of International Trade spelled out the terms of the deal in a March 1 interview: 'The Central Committee has made a major strategic decision to expand imports in pursuit of promoting balanced trade', Zhao said. 'China's huge domestic market will provide business opportunities to foreign companies, while China can increase its international market influence and upgrade domestic consumption'.

inviting the world

The CIIE is divided into two parts: the trade show for deals, and the concurrent Hongqiao International Trade Forum to discuss policy. Some half of the commercial section (targeting Global 500 companies) was booked by end February and is expected to fill up by end May. The country pavilion section, claim organisers, has more than 60 participants; due to limited space, it is no longer being promoted.

To ensure that deals are struck at the trade show, governments across China are marshalling squads of buyers. Organisers currently estimate that 150,000 buyers will attend (including some international). Chinese registered companies cannot participate as sellers, but some of the largest—including Alibaba, Jingdong and COFCO—will be represented by their overseas branches.

The detailed Forum agenda remains under wraps, aside from the mantra of 'open, fair, inclusive, sustainable and mutually beneficial growth'. MofCOM states it will include RMB internationalisation and new global and regional investment regulations; over 100 national leaders and ministers have been invited, and will be joined by heads of international organisations, domestic and foreign business representatives, and experts. By early March 2017, major exporters, including Japan, South Korea, Germany and France, had committed to attend. The US, however, has declined to participate. Companies like Tesla and Facebook have indicated they will.

As well as the Expo, MofCOM has outlined three policy priorities to boost imports

• improve monetary and financial policies, including reducing tariffs on some consumer products, and encouraging credit and insurance support by financial institutions
• coordinate supply and demand and improve trade facilitation, including upgrading the quarantine inspection system for traded goods, and promoting customs clearance integration
• reform and improve import management, including reducing red tape and government interference while strengthening oversight

to go, or not to go?

The CIIE has been dubbed a top priority. Agricultural organisers told China Policy that it is 'a national effort, like the Olympics', aligned with the goal of moving to a new development model. A must-attend event with considerable low-hanging fruit, it is likely to mark the start of changing dynamics and new risks in the Chinese trading space.

Opportunities will not be found in all sectors: 'promoting balanced trade' means obtaining inputs for high-end manufacturing and goods for consumption. Those attending the policy forum may be presented with a model of global economic cooperation that takes them by surprise. Attendees at the 2014 Wuzhen World Internet Conference were presented with a draft Wuzhen Declaration less than 12 hours before a proposed vote to endorse these agreed principles for internet governance. While this approach failed, China continues to seek support for its model, re-introducing its ideas whenever the opportunity arises.

China seeks to open new channels for imports at CIIE, promising hefty economic opportunities. But the drive for imports presents a substantial geo-economic challenge as Beijing sees an opportunity to shape the rules that will govern new and emerging sectors of global trade.

who is moving the agenda?

Wang Yang 汪洋 | vice premier

As vice premier, Wang Yang chaired some key leading groups responsible for (inter alia) rural reform, customs reform and the CIIE. At the first preparatory meeting for CIIE on 24 Aug 2017 he called the Expo a signature project of Xi Jinping 习近平-led 'reform and opening up'. The Expo, he argues, can help scale up imports, promote trade, improve supply structure, stimulate innovation at home, and give emerging economies a greater say in globalisation. Ultimately, the Expo should become a global public good advocating BRI and economic globalisation. Promoted to the Politburo Standing Committee in October 2017, Wang will no longer oversee the trade portfolio after March 2018.

Fu Ziying 傅自应 | MofCOM international trade negotiator and vice minister

Renowned for negotiating a 2005 textiles dispute with the EU, Fu became China's top (minister-level) trade representative in February 2017. Working his way up in MofCOM as vice minister overseeing finance, foreign trade development and foreign aid from 2008-11, he spent three years as vice governor of Jiangsu. Fu holds a PhD in economics, has studied at Boston University and is a certified accountant.

Quan Heng 权衡 | Shanghai Academy of Social Sciences Institute of World Economy director

Leading one of the country's most influential think tank departments, Quan advises the Party Central Committee and Shanghai's municipal government. He is also editor of the Academy's annual world economy report. Ever greater wealth gaps and inward-looking ageing societies in developed countries have spawned protectionism. This, he warns, will seriously disrupt labour division in the global value chain and lead to a decrease in trade volume. Deregulated capital flow into 'virtual economies' hinders returns on assets, placing more strain on already short assets and harming the real economy.

Wei Jianguo 魏建国 | China Centre for International Economic Exchanges (CCIEE) vice chairman

Wei made his trade diplomacy bones in North Africa before joining MofCOM, becoming vice minister in 2003. In 2009, he became CCIEE vice chairman as it moved up to become one of China's leading think tanks. He is also a member of the Leading Work Group for Constructing 'Belt and Road'. Wei stresses that China, as one of the greatest beneficiaries of the current world order, will not overthrow, but improve global governance.

Zhang Yansheng 张燕生 | China Centre for International Economic Exchanges chief researcher

Zhang is a top government advisor on trade and international economy and finance and has worked within NDRC since 1996, first at the Institute of Foreign Economy and then as secretary general of the Academic Committee since 2012. In January, he projected that China will run a trade deficit within 5-20 years under a new strategy for 'balanced trade'. He has also warned that the Trump tax plan will impact China's domestic economy.