A key commerce official has defended China's rising trade surplus as remaining at an "acceptable level," while revealing that the growth of foreign investment in the country is slowing down.

 

Ministry of Commerce spokesman Chong Quan said on Friday that the country's trade surplus now accounts for 7.7 percent of its total foreign trade volume, "much lower than the internationally recognized danger level of 10 percent."

 

China's trade surplus in the first half of 2006 was US$61.5 billion, reflecting a sharp increase of 54.9 percent from a year ago, when its imports and exports totaled US$795.7 billion.

 

China's growing trade surplus is a natural result of international industrial restructuring, despite the country's efforts to keep a balance between imports and exports, the spokesman said.

 

"During the course of the industrial restructuring, China not only took over the role as a world manufacturing center, but also took over trade surpluses from some countries," he said.

 

Chong said China's trade surplus resulted from multinationals moving their investment to China from other Asian countries, producing numerous products here and exporting them with a "Made-in-China" label.

 

His remarks were echoed by Zhai Zhihong, an official with the National Statistics Bureau (NSB), who said the country's trade imbalance was largely the result of foreign-invested processing operations.

 

According to NSB figures, nearly 90 percent of the country's trade surplus came from processing trade since 2000 and over 70 percent of the surplus was from foreign-invested firms.

 

In another development, realized foreign direct investment (FDI) to China dropped 12.23 percent last month year-on-year to US$5.44 billion, according to the spokesman.

 

China's total FDI inflow was some US$28.4 billion in the first half of this year, reflecting a decline of 0.47 percent from a year ago, while officials did not reveal the figure of contracted foreign investment that China earned during the same period.

 

"I would attribute the decline to some foreign companies cutting their investment to China, in particular to some low value-added sectors, because of the price rises of raw materials and labor resources in China," said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a commerce ministry think-tank.

 

Some domestic investors may have also stopped disguising themselves as foreign companies as the government speeds up uniformity of income taxes on foreign enterprises and domestic companies, he said. The tax rate is now about 23 percent for domestic firms, but 10-13 percent for foreign companies.

 

"But it is not a bad thing, it is even good for the economy to some degree," Mei said. He explained this would help to wash out fake foreign investment and push foreign investors to spend more on research and development in China.

 

At the same time, the spokesman also responded to European Union Trade Commissioner Peter Mandelson's recent comment on China.

 

Having noted that "for every four containers loaded at Shenzhen for Europe, three still come back empty," Mandelson said there would be "a big problem" if those containers stay empty, "because the rights of European businesses are not being properly protected in China, or because they do not have proper access to the Chinese market."

 

But Chong indicated that lots of Europe's exports to China may not be shipped in containers, "because China mainly exports labour-intensive products and imports high value-added technology-intensive products," he said.

 

(China Daily July 15, 2006)