China boosts foreign trade amid restructuring efforts

A slew of recent measures to bolster China's foreign trade will lend steam to the slowing economy and help domestic exporters climb up the value ladder, also paving the way for deepened financial reforms, experts have said.

BOOSTING FOREIGN TRADE

China will support exports and imports by taking steps like offering tax refunds for exports, reducing tariffs on popular consumer goods and opening more duty free shops at ports, according to a guideline issued last week by the State Council, the country's cabinet.

It urged governments at all levels to implement measures to prop foreign trade, saying a new round of opening up at a higher level is "a pillar to a better quality, more efficient economy."

More efforts should be laid on creating an easier business environment for foreign trade companies, creating new export business models, supporting equipment to "go global" on the back of financing services, providing better export credit insurance to help small exporters open new markets and facilitate exporting large and complete sets of equipment, it noted.

Exports are one of three economic drivers and China's fast growth in past decades to a large extent hinged on exports.

Despite the process of moving the economy away from reliance on credit expansion, investment and exports, it will take time for new growth engines to fully emerge, and supporting measures have been taken to arrest the economic downturn.

China's economic expansion slows to 7.4 percent in 2014, the lowest rate for 24 years, with the foreign trade volume denominated in U.S. dollars edging up by a mere 3.4 percent in 2014 year on year amid an anemic global recovery, sharply lower than the 7.6-percent registered in 2013.

The string of targeted measures was announced on the heels of the publicity of subpar Chinese export figures.

Exports rose slightly by 0.9 percent in the first six months from a year ago, weighed down by feeble external demand, devaluation of major currencies and a lack of domestic exporters' competitiveness, said Shen Danyang, the Ministry of Commerce spokesman, predicting the latest measures can help inject vitality into companies, spur innovation and stabilize foreign trade.

Economists have long been arguing for increasing exports of high-end products like sophisticated machinery rather than clothes and other low value-added products, which will be a boost for China's industrial upgrading and broader restructuring efforts.

"If China can transform itself from a producer of goods with low added value to those with high added value, it will speed up economic restructuring and provide growth momentum to global trade," said Lyu Gang, an economist with Development Research Center of the State Council, a government think tank.

WIDER RMB TRADING BAND

The market-oriented RMB exchange rate formation mechanism should be improved, the daily trading band of yuan against the U.S. dollar will be further widened, and the exchange rate should be kept at a stable and reasonable level to help firms avoid risks, noted the guideline.

China loosened its grip on the yuan-dollar exchange rate in March 2014, widening the daily trading band to two percent from one, a major step forward in the country's exchange rate regime reform.

The daily trading band may be widened to three percent in the next two months, and market forces will be given a more prominent role in exchange rate formation, reducing technical barriers to RMB inclusion in the International Monetary Fund's (IMF) special drawing rights (SDR) basket, noted a latest report from China International Capital Corporation (CICC).

The SDR was created in the 1960s as an international reserve asset that IMF members can claim in times of need. The IMF is conducting its five-year review of the SDR basket this year and will decide whether to include the RMB into the basket.

Some experts believe RMB inclusion can be a catalyst for opening-up and financial reform.