China’s Support Of Imports And Exports To Boost Economy
The government’s recent measures to boost China’s foreign trade (imports and exports) will help its slowing economy along with helping domestic exporters add value to their products, thus paving the way for the necessary financial reforms.
China will support exports and imports by offering tax refunds for exports, reducing tariffs on certain consumer goods and opening more duty free shops at ports and airports, according to a guideline issued last week by the State Council.
The State Council guidelines urged governments at all levels to implement measures to bolster foreign trade, saying a new round of opening up at a higher level is “a pillar to a better quality, more efficient economy.”
Exports are 1 of the 3 economic drivers and China’s fast growth over the past 4o yrs.
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 halt the economic downturn, experts say.
China’s economic expansion slows to 7.4% in Y 2014, the lowest rate for 24 years, with the foreign trade volume denominated in USD edging up by 3.4% in Y 2014 year on year amid an anemic global recovery, lower than the 7.6% marked in Y 2013..
Economists have long been pushing 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.
The market-oriented RMB Yuan exchange rate formation mechanism should be improved, the daily trading band of the RMB Yuan Vs the USD will be widened, and the exchange rate should be kept at a stable and reasonable level to help firms avoid risks, noted the State Council guideline..
The daily RMB Yuan trading band may be widened to 3% in the next 2 months, and market forces will be given a more prominent role in exchange rate formation, reducing technical barriers to RMB Yuan inclusion in the International Monetary Fund’s (IMF) special drawing rights (SDR) basket.
The SDR was created in the 1960’s as an international reserve asset that IMF members can claim in times of need. The IMF is conducting its 5-year review of the SDR basket this year and will decide whether to include the RMB into the basket.
RMB Yuan’s inclusion will be a prime catalyst for opening-up and financial reform.
Stay tuned…
HeffX-LTN
Paul Ebeling
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