Sheng Bin: Foreign trade transformation must consider the adjustment of global production methods

If you want to use one word to describe the current situation of China’s economy, then it must be “new normal”. As the general logic of China’s economic development at present and in the future, the impact of the “new normal” on China’s economy is reflected in all aspects. In short, the Chinese economy needs to adapt to the new pattern of domestic and international development and build a new open economic system.
In recent years, with the outbreak of the financial crisis, the economies of developed countries have fallen into a downturn, resulting in weak external demand. Troubled by this, the growth rate of my country’s foreign trade and foreign investment has slowed down year by year, and the balance of payments surplus has decreased significantly. Currently, my country’s international balance of payments surplus accounts for 2.6% of GDP, down from 11% in 2007.
How to understand the “new normal” in my country’s foreign trade and foreign investment fields? How to deal with it? Will my country’s foreign trade and foreign investment policies make corresponding adjustments? Recently, at the first Tongji University International Academic Forum on Economics held at the School of Economics and Management of Tongji University, Sheng Bin, professor at the School of Economics at Nankai University and director of the China APEC Research Institute, explained this.
​The new normal of foreign trade and investment
“Explaining the new normal according to the language of economics refers to the transformation of the economic structure.” Before talking about specific issues, Sheng Bin first explained the new normal. From this perspective, my country’s foreign trade industry has indeed been in a period of deep transformation in recent years.
Sheng Bin explained this issue from two perspectives. From the perspective of the foreign environment, various countries, especially Western countries, regard expanding exports as an important part of getting out of the economic crisis, such as the “Export Doubling Plan” of the United States. This means more competition in the international market.
From a domestic perspective, as my country’s labor costs rise, environmental protection strengthens, and the legal environment gradually improves, the dividends of my country’s processing trade gradually disappear, and some foreign investment begins to move to Southeast Asia where labor costs are lower. This means that my country’s foreign trade industry has reached a very important moment of upgrading.
Sheng Bin pointed out that under the new global production system pattern, international competition has shifted from competition in the entire industry chain to competition within the industry chain, between different functions, different links, and different tasks. Trade benefits have also shifted from focusing on scale effects to focusing on value-added benefits.
Under the new international background, China’s foreign trade model needs to shift from the traditional “two ends outside” processing model to mid-to-high-end manufacturing and services.
“This process of industrial upgrading includes process upgrades, functional upgrades, value chain upgrades and other forms. China’s pressure has increased further than in the past.” Sheng Bin said.
From the perspective of regional structure, the global economic system has changed from the past “center-periphery” system to a “dual-core” system. Emerging market countries account for 50% of global GDP, and they attract two-thirds of the world’s foreign investment. “Emerging markets have strong demand for medium and high-tech products, modern service industries, production capacity cooperation, and infrastructure construction.” Sheng Bin believes that China’s trade needs to seize this opportunity and shift from focusing solely on developed countries in the past to equally focusing on expanding emerging markets.
From the perspective of trade structure, its production form and pattern have also undergone great changes. “Commodity production and trade have shifted from standardization and scale in the past to intelligence and diversification.” Sheng Bin explained.
This means that my country’s foreign trade exports will shift from exports of consumer goods to intermediate goods and capital goods, and further enhance the competitiveness of service trade. Sheng Bin pointed out that although my country’s foreign trade is generally in surplus, service trade has always been in deficit because there is a trend of further expansion.
In addition, in terms of capital flows, some new situations have also emerged in our country. At present, China is already the third largest foreign investment country in the world, second only to the United States and Japan. By analyzing the data of the past two years, Sheng Bin found that China has changed from a country with net capital inflows to a country with net capital outflows.
Great changes have also taken place in the concept of foreign investment. The investment method has shifted from traditional investment in new factories to more mergers and acquisitions investment and equity investment. The investment field has also shifted from focusing on natural resources and commercial trade to investing heavily in local strategic assets, including infrastructure construction.
​Trade policy upgrade
These new changes mentioned above also bring challenges to traditional trade and investment policies. Sheng Bin said that the world is currently shifting from the “first generation” trade policy centered on market access to the “second generation” trade policy centered on regulatory integration.
“Traditional trade policy refers to those areas and provisions stipulated in the WTO agreement. The “second generation” trade policy is more implemented in some high-quality and high-level regional trade agreements. For example, the BIT agreement in the United States , as well as the TPP agreement and the TTIP agreement. This field is very broad, not just pure trade policy, but also many economic and social development issues.” Sheng Bin explained to reporters in detail.
Specifically, traditional trade policies mainly focus on border measures of tariffs and non-tariff barriers, such as the two countries reaching an agreement to reduce or reduce tariffs on each other. And the “second generation”Trade policies place more emphasis on “positive competition”, that is, the coordination of regulations and policies of various countries by both parties. Not only trade policy, but also issues such as labor, environmental protection, and intellectual property rights. First meet the prescribed minimum standards and then gradually increase them.
“This kind of negotiation puts great pressure on domestic reforms. Because your domestic policy space is getting smaller and smaller.” Sheng Bin said.
Sheng Bin further pointed out that the current bilateral and regional free trade area agreements signed by China are still “first-generation” trade agreements of low quality. The coverage and implementation rate of second-generation trade policies in China’s free trade zones are much lower than those of TPP negotiating countries. “The world has begun a new round of negotiations for future business rules and disciplines. These negotiations are conducted outside the WTO. To a large extent, they are a threat to the WTO as the center of the global trading system, but they are also a threat to it. Promote.”
In the face of international competition, my country’s traditional advantages include factors, costs, infrastructure, markets, incentives, etc. Although they are still in effect, their importance is much less than before. Sheng Bin believes that our country now urgently needs to create a new type of institutional advantage, including a series of issues such as supply chain network, business environment, rule of law, policy transparency, property rights investment protection, and dispute settlement.
Sheng Bin emphasized: “These problems cannot be solved by simply low prices and some preferential transfer measures. The overall domestic institutional structure must be systematically changed to be more in line with international standards.”
​Facing the “Second Entry into the WTO”
So in the context of the “new normal”, how to achieve a new transformation of my country’s foreign economic and trade?
In response to this problem, Sheng Bin also gave his own suggestions. In his view, the first priority is to pay attention to strategy. “New strategies must take into account the emerging global production methods, as well as our development goals as a developing country and the constraints of international trade agreements to formulate new strategies.” Sheng Bin said.
Specifically, it is to organically link China’s domestic regional development strategies with international and regional economic and trade development strategies. “Especially, how can China’s surrounding areas achieve good interaction with our central and western regions? Not only in the economy, but also in politics, diplomacy and security, to form effective policy coordination.” Sheng Bin said.
In addition, Sheng Bin also proposed to build a new mechanism for economic and trade development. The fundamental principle is to promote opening up internally and externally, and use opening up to promote reform to form a virtuous cycle.
Sheng Bin explained to reporters in detail: “The purpose of deepening domestic reforms is to be able to participate in higher-level international cooperation; and to sign higher-level international agreements is to promote domestic reforms and enhance international competitiveness. In fact, China is now facing the problem of joining the WTO for the second time and the challenge of integrating into the world to a higher economic level.”
Sheng Bin proposed that the construction of my country’s free trade zones should be in line with the global high-standard free trade zone network. The foreign economic and trade cooperation system is not limited to trade but should be expanded to areas of foreign investment that were relatively weak in our country before.
The last step is to establish new advantages and interests in my country’s foreign trade field. Sheng Bin believes that our country’s negotiators often feel very passive when negotiating with the other party. The reason is that we have not found our own interests and advantages. “For example, which department of ours is strong? Which industry is strong? Which aspects of our rules are we weak in and which are our strengths?”
Sheng Bin said that under the new normal strategy of foreign trade and economic cooperation, our country’s negotiators must pay attention to reflecting their own interests in negotiations, and this interest appeal must be carefully studied and screened, and they cannot only focus on immediate interests and ignore the future. Benefit.