The United States Misinterprets China’s Commercial Surplus

The United States frequently refers to China’s large trade surplus to justify the necessity for the Asian country to allow its currency to appreciate.

However, this is not taking into account that the vast majority of Chinese products exported to the North American country is manufactured for U.S.-based companies, and a large part of the profits end up in the pockets of those same companies.

Chinese Prime Minister Wen Jiabao said, during a press conference, that half of China’s exports are related to the processing industry, in which imported components are assembled in local factories, and that 60 percent of these products are manufactured for companies of foreign or mixed capital.

“Therefore, imposing restrictions on trade with China is equivalent to causing problems for American companies,” said the premier.

According to the statistics of China’s Ministry of Commerce, 55.9 percent of Chinese exports in 2009 were manufactured for foreign companies. The proportions for high-tech products and electronic goods were 83 percent and 75 percent, respectively.

Furthermore, more than 90 percent of high-tech goods exported to the United States were produced for foreign companies.

Researchers at the University of California carried out a study on the iPod, Apple’s digital music player, to determine which countries reap the greatest benefits from the production of these goods.

The study revealed that only $4 remained in China, while most of the earnings went to the designers, distributors and suppliers of components.

For that reason, it seems unjust that the total price of an iPod, some $300, is considered part of the Chinese exports to the United States.

“China’s cheap labor helps foreign companies cut wage costs and increase their profits. Ironically, the rising profits go into foreign bosses’ pockets and China is left to take the blame for the trade imbalance,” said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.

Wen Jiabao also said, during the press conference, that the country’s trade imbalance would be much smaller if the United States approved the export of more high-tech products to China.

In 2007, the U.S. government passed some new regulations in which they established a block on the exportation of 20 categories of goods to China, including airplane motors, lean oil, lasers and avionic devices.

The statistics show that 18.3 percent of high-tech imports into China in 2001 came from the United States. The figure has been reduced to 8 percent in 2008, in part due to the strict controls imposed by American authorities.

“On one hand, the United States asks Beijing to reduce its trade surplus. On the other hand, it refuses to sell high-tech commodities to China. What really does it want?” said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission.

“I sincerely hope the Europe Union and the United States will recognize China’s market economy status and lift restrictions on the exports of high-tech commodities to China, because that will help promote trade balance in the world,” said Jiabao.