US Official: China must increase consumption

By Qi Xiao (chinadaily.com.cn)
Updated: 2009-10-23 16:20

Beijing: China must rebalance its trade with the US and rely more on domestic consumption to drive economic growth, a top US Treasury official said here on Thursday.

"In the last few years, the increase in China's net exports added three to four percent to growth directly…China’s trade surplus rose above 10 percent of the GDP", which left China highly vulnerable to a decline in external demand,” the US Economic and Financial Emissary to China David Dollar said in a speech at the Fourth China-US Relations Conference.

"That's exactly what came last fall - a breath-taking fall in exports that spilled over into an investment downturn. An estimated 20 million workers lost their jobs in a short time," he continued.

Between January and September, China's exports fell by 21.3 percent compared with the same period in 2008. The country's total trade with the European Union dropped 19.4 percent while trade with the US and Japan declined 15.8 percent and 20 percent respectively, according to the General Administration of Customs.

Instead of exports, Dollar argued, China should focus on its service sector, which helps drive consumption, and where he said there is huge potential for job creation.

"China's services sector is more labor-intensive and knowledge intensive," Dollar said, "For each 1 percent of growth, services sectors create more jobs than manufacturing. And of the service sector workforce, almost 40 percent are college educated, compared with less than 10 percent in manufacturing."

In addition, Dollar said, "Service production is generally more environmentally friendly."

Barbara Hackman Franklin, former Secretary of Commerce under President George H.W. Bush also attended the conference, and reinforced Dollar's argument.

"The US must increase savings and be less consumption-led and that China must become more consumption oriented and less dependent on exports," she said. The two sides should work to reduce the huge imbalance in their trade, lest it "escalates as a sore point, politically, on the US side in the years ahead."

For the moment, however, Franklin said she is not too worried about the recent trade disputes between China and the US over tires and poultry, "as a trade war would damage both sides."

Also on Thursday, China's National Bureau of Statistics released its latest economic data. According to the National Bureau of Statistics (NBS), the Chinese economy grew at 8.9 percent in the third quarter of this year, and the NBS spokesman Li Xiaochao said "with certainty" that China's annual growth will reach the government's 8 percent target by the year's end because of the massive 4 trillion yuan ($586 billion) government stimulus plan.

But stimulus-supported growth is not a long term solution, Dollar argued.

"The vast majority of China's growth this year is coming from investment (on infrastructure)," he said. "The problem is this current pattern of growth makes sense in a downturn, but is not sustainable for the long run."

China's top leaders have also signaled their concerns over imbalances in the economy, and the State Council said it will shift government policies to dealing with waste and other problems of high growth.

"In the first three quarters, the pace of economic growth quickened," the State Council said in a statement on Wednesday after a meeting with Premier Wen Jiabao. "At the same time, we also are clearly aware that there are still difficulties and problems in the economic and social development of our country."

China's economic stimulus plan remains on track, but greater efforts will be made to curb industrial overcapacity, promote new industries, maintain liquidity and lower unemployment, it said.