How to understand Chinese current surplus of US$317.3 billion in 2021

 

The driving factors are low-cost world factory and suppressed domestic demand. The transition from Trump Administration to Biden Administration gives US government less time to focus on Chinese government’s unfair trade practices.

Implications:

What contributed to low cost included abuse of workers’ rights, large population and learning curve.

There’s no freedom to form independent trade union. Chinese government set up prison systems to enforce prison labour practice. There’s no judicial independence to defend the rights of workers and real justice. Following Xinjiang genocide becoming hot topic, forced labour is drawing more international attention and USA has made legislation to prevent importing forced labour products from China. Low cost arising from low labour cost is unsustainable.

It’s reported that there’re 1.4 billion population in China but the birth rate is decreasing. Low wages, high home prices and brutal autocracy system make younger Chinese unwilling to marry and give birth to children. Low wages and high home prices also suppressed domestic demand and reduced importation as mortgage payment took up a large part of wages and savings. Scale economy arising from large population is unsustainable.

China has been a world factory for many years and repeated production generated learning curve because many multinationals are operating in China. The supply chain was available to meet current demands. But China didn’t invest any in real innovation as autocracy rejected academic freedom, independent thought and free flow of information. Autocracy also intensified the division between China and international community making it likely to be isolated by global market mainly dominated by democracies such as G7. Supply chain is being gradually moved to India, Southeast Asia and other countries.

Trade surplus means that trading partners are experiencing trade deficit. Long term trade deficit, such as in the USA, means that many workers don’t have job and reduced employment in the trading partners would hamper future export and make foreign countries more and more hostile to China especially considering unfair trade practices which violated WTO protocols.

Solutions:

China should pursue trade balance to reduce trade surplus actively rather than passively. To pursue balance, China should enforce systematic change to release domestic demand. Increased domestic demand reduces export and increases importation.

To increase salaries of workers to release demand, China should carry out democracy reform to realize judicial independence, protect freedom of formulating independent trade unions, free speech, human rights and free media.

To release demand to increase importation, China should adopt free foreign exchange system to allow Chinese citizens to exchange for US dollars freely. By doing so, Chinese citizens could freely buy what they really want.

China should enforce a complete market driven economic system. Current Chinese economy is dominated by government order plan and state-owned enterprises breaking fair competition. State-owned banks often borrow money to state-owned enterprises but Chinese supervisors didn’t treat such transactions as those between related parties.

But it's neither possible nor feasible to make change happen.What really works is for Chinese to declare independence from the People's Republic of China