Cost Pressure Without Injury To China'S Export Competitiveness

The latest China Economic Quarterly released by the world bank in Beijing in September 12th believes that the rising pressure on commodity prices in the international market is weakening, which helps to alleviate the pressure of price pressure China faces.

Nonetheless, the risk of price rise is still constant, because most of China's raw material prices are greatly affected by the commodity prices in the international market.

The world bank believes there is no sign that cost pressures clearly affect China's competitiveness.

Although the prices of Chinese exports have started to rise (in US dollars), they have risen less than other exporters.

China faces two kinds of cost pressures: international and domestic.

The cost pressure on the international market is that the recent rise in primary commodity prices has pushed up the price of manufacturing products all over the world (including China); in domestic terms, cost increases include wage increases, land lease fees have risen, export tax rebates for value-added tax have been cut down, and export taxes on energy intensive products have been levied.

Exchange rate changes also played an important role.

The import prices of the US market can show how these factors work.

Since 2003, the US dollar has gradually depreciated against the euro and other currencies (but not against the renminbi), making the prices of imports from the United States rise, and these countries have experienced the rise in commodity prices.

Recently, the yuan began to appreciate against the US dollar, and the result is that the price of imports from the United States is rising.

However, the price of imports from the United States is still lower than that of imports from other countries, making China's competitiveness less obvious.

In fact, up to now, the rise in China's export prices has not led to a decrease in export volume or a decrease in profit margins.

On the contrary, driven by the rapid growth of production efficiency and labor productivity, China's industrial profit margins continue to rise.

Other regulatory measures are likely to take place, including a further appreciation of the renminbi.

However, the implementation of these measures is likely to be gradual, so most of the cost pressures can continue to be absorbed by the improvement of production efficiency and upgrading of product structure.

In recent years, although China's exports have been very attractive, the slowdown in import growth has become a key factor behind the growth of trade surplus.

The world bank predicts that in the second half of 2007 and 2008, China's import growth will increase due to strong domestic demand growth.

However, because so far there is no sign of any policy adjustment, the growth of imports is likely to be lower than expected.