China's foreign trade may move into the red in 2004 and its trade surplus will shrink sharply to US$10 billion for this year, according to an authoritative report released yesterday.

The bi-annual report is issued by the China Foreign Trade Situation Report Panel, which comprises experts from the Ministry of Commerce and the Chinese Academy of International Trade and Economic Co-operation.

The trade surplus for the first nine months of the year has already fallen 54.3 per cent to US$9.15 billion, while imports during the same period soared 40.5 per cent to US$298.56 billion.

Imports far outstripped the growth in exports, which rose 32.3 per cent to US$307.7 billion.

The report predicts that China's total foreign trade volume will reach US$780-800 billion for 2003, up 25 per cent year-on-year. If correct, it will make China the fourth biggest trader in the world.

It predicted a further expanded trade volume next year boosted by the warming world economy, the continued shift of world manufacturing power to China and the surging Chinese economy.

"But a big decline will happen to the growth rate, especially in exports, given the high basis this year," the report said.

The increase in exports will be pulled back by negative impacts from the revamped tax rebate system and rising trade protectionism around the world.

The new rebate system, announced by the government this month and due to take effect on January 1, will cut the refund rate by an average of 3 percentage points.

The report says the new system will increase the exporting cost of Chinese manufacturers and stifle their desire to export.

"Some companies with marginal profit rates may quit the export business and some labour-intensive products will be phased out of the international market," the report said.

It suggested more attention be paid by government and industry to the prevailing international protectionism.

The failure of the Cancun World Trade Organization meeting will force its member economies to be more conservative in market liberalization.

The unpromising world economy will force the trade projectionists to speak louder and move aggressively to help their industries this year, the paper predicts.

Trade protectionism is a huge threat to Chinese exports, which have been the biggest victim of anti-dumping charges. More than 540 cases had been laid by the end of September.

Coupled with slowing exports next year, imports will grow rapidly because of continuing robust demand - pushing the trade surplus into deficit.

However, the report believes the small deficit will not have an impact on the Chinese economy if the imports are reasonably spread over all sectors.

But it suggests the government has to watch import quantities closely in case they start having an impact on some of the fragile domestic industries.

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