Zhao Jinping

1．If the trade deficit will show up in 2 – 3 consecutive quarters in 2004, then anticipation of the Renminbi appreciation on the market will evidently weaken and the cost and pressure from the adjustment of the exchange rate mechanism will decrease accordingly. In this case, a steady reform of exchange rate system can be taken into consideration: the first is to gradually establish a package monetary system; and the second is to raise the level of the exchange rate fluctuations allowed.

2．The shrink of the trade surplus cannot produce apparent effect on the settlement of the bilateral contradictions between China and the United States and other countries, though it helps alleviate the market pressure from Renminbi appreciation and the inflation. The reason is that the structural problem of the trade imbalance has not been alleviated. Hence, bilateral coordination aimed at the targeted countries from which trade surplus has resulted should be strengthened and import from those countries should be increased, so as to relieve the bilateral contradictions.

3． Even if the trade deficit increases, the method of artificially limiting import cannot be adopted to deal with the situation of trade imbalance. The reason is that artificially limiting import will have effect on the results of the resource optimization distribution through market and will distort the supply-demand situation of the component market, thus unfavorable to the enhancement of the overall economic efficiency. The comparatively effective method is still to relieve the pressure from the growing demand on the market for the relevant products, such as the major raw materials and energies, through macroeconomic regulation of the overheated investment industries.

4．We should consider the export rebate policy in the long run and, through the reform of value added tax system, should bring down the difficulty of tax collection and administration as well as tax rebate, gradually realize the export rebate mechanism that complies with international standard and reduce the unfavorable orientations against the trade structure due to the increase in the domestic purchasing cost. It can be seen at present that reduction of export rebate rates is one of the reasons shifting the normal trade pattern to processing trade pattern and reducing the domestic purchasing rate for processing trade. In order to avoid the unfavorable influence caused by the long existence of such export rebate policy on the effect of the industrial policy of encouraging the import of the intermediate products for processing trade to take the place of extending the domestic industrial chains, on condition that the VAT collection and tax rebate supervision measures are improved, we should still consider the restoration of the “Zero Tax Rate” system for the export of most commodities.

5．At present, there is a point of view that suggests improvement of balance of international payments by means of restricting direct foreign investment. First, the recent huge amounts of surplus from foreign exchange receipt and disbursement do not have much to do with direct foreign investment, but mainly originate from the net inflow of the short-term capital in various names resulted in by the anticipation of Renminbi appreciation, an outcome of the influence from the short-term factors such as the market fluctuation. Absorption of direct foreign investment fits in with the need for the long-term development of the Chinese economy. Adjustment of the long-term policies owing to the influence of the short-term factors is unfavorable to the maintaining of the long-term stability of the macro-economy, and will exert influence on the sustainability of the economic growth.

May 2004