A small step on trade balance and economic soft-landing

September 16, 2006 at 12:03 am (China, Economics)

For the first time, Chinese government stops encouraging export. The government cut its support to steel and textile exports, and put the incentives on high-tech and biomedical goods. This policy is apparently intended to slow down China’s economy and release the currency pressure. Academicians have been appealing for cuting the export incentives and encouraging the domestic consumption. Wang Yiming, a senior researcher of National Development and Reform Committee, said in July in Hong Kong that reducing export rebate is among the choices that the government can adopt to balance the economy. Today’s news revealed that the authority is buying the opinions from the academic community.

China’s trade surplus surged to $18.8 billion in August, and its economy grew 11.3 percent in the second quarter. External pressure is also mounting when two US senators decided to send their proposal to congress. If the draft is taken effect, it will legitimize the government to impose 29 percent tariff on all imports from China. China’s economy relies too heavily on exports. It’s very important to stimulate domestic consumption and slowly decrease exports. This will not only maintain the momentum of economic growth, but will also make the economy healthy and durable. Less exports will at least pause the surge of foreign exchange reserve, which is expected to surpass 1 trillion soon this year, and mitigate the currency pressure.

The cut of export rebate is a significant turning point of China’s economic policy, but it’s just a very small step. To make the economy healthy and lasting, China has to move faster on multiple areas: banking, equity market, and most important, currency rate.

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