As discussions on global trade imbalances deepen, global trade restructuring is moving into a critical stage. Western scholars have been quick to put the blame of the imbalances on China. He Weiwen, Executive Director of the China Society for World Trade Organization (WTO) Studies, told People's Daily that China has long been committed to pursuing a trade balance.

This is evidenced by trade data since China's accession to the WTO a decade ago. From 2000 to 2010, China's exports increased 20.3 percent annually on average, while the average annual growth rate of its imports stood at 20 percent. That is to say China's exports and imports grew at almost the same pace. The latest available trade statistics show China's trade surplus accounted for only 4.18 percent of its total trade volume from January to November 2011. The ratio was 5.08 percent in 2000.

Unfair blame

Some U.S. politicians and scholars argue China should play a decisive role in regulating global trade imbalances, which they believe mainly result from imbalances in Sino-U.S. trade. They claim the artificially undervalued yuan has led to the continued increase of the U.S. trade deficit. Trade imbalances serve as their most frequently used "munitions" to attack China's trade policy. They accuse China of deliberately pursuing a trade surplus through currency manipulation, thereby causing "global trade imbalances." They even consider China the root cause of the 2008 global financial crisis.

Albert Keidel, a senior research fellow with the U.S. think tank Atlantic Council, said it is unfair to blame China for global trade imbalances. Financial bubbles created by the United States over the past decade have fueled these imbalances.

An objective analysis of global trade imbalances will pave the way for effective decision-making, either an overestimate or an underestimate can raise problems, said Guoyong Liang, an economic affairs officer at the UN Conference on Trade and Development. Against the backdrop of economic globalization, production capacity has been rapidly relocated to emerging markets. The real economies of the United States and some other developed countries have weakened, while their financial industries pursue an unhealthy course of development. The massive expansion of governmental and non-governmental credit has made excessive consumption and imports possible, Liang said.

Robert Reich, a professor of public policy with the University of California, Berkeley, said U.S. statistics on its trade deficit are unreliable. U.S. consumers are buying from China what they used to buy from Japan and South Korea because companies in these countries have moved their assembly lines to China, said Reich, who served as secretary of labor under former President Bill Clinton.

China imports large numbers of parts for its products from countries with lower wages such as Southeast Asian countries. The world's leading companies, most of which are headquartered in the United States, are all seeking to minimize costs. Even if the U.S. trade deficit with China declines, its deficit with other Asian countries will unlikely rise. China therefore should not be a scapegoat for U.S. deficit spending, Reich said.

An increasing number of analysts believe current trade imbalances are the result of the division of labor among different countries in the context of economic globalization. A stronger yuan will lead to rising consumer goods prices in the United States. In other words, U.S. consumers will have to bear increased import costs. The yuan's appreciation will not help solve global imbalances but make them even worse. The U.S. trade deficit is a multilateral problem instead of a bilateral problem with China.

The Singaporean newspaper Today commented that Washington's "China-centric blame game" is absurd. "Without addressing the root of the problem--the United States' chronic saving shortfall--it is ludicrous to believe that there can be a bilateral solution for a multilateral problem," it said.

Flawed statistics

The current statistical method is a primary reason for the emergence of global trade imbalances. WTO Director General Pascal Lamy said traditional trade statistics has severely distorted the real economic dimensions of bilateral trade imbalances, sparked tensions in international trade relations and provided justification for protectionism. It can no longer reflect realities in the global supply chain. Reforming the trade statistical method, instead of exchange rate fluctuations, should be the solution to global trade imbalances.

Xing Yuqing, a professor with the Asian Development Bank Institute, said when recalculated based on value added contributed by China, 42 percent of China's trade surplus with the United States is exaggerated. China is at the end of the global manufacturing chain. Many products labeled "made in China" are actually made globally and assembled in China.

Take the iPhone for instance. China exports iPhones to many countries including the United States after assembling them with hardware imported from Japan and South Korea and software from the United States. Xing found the production cost of an iPhone is about $172.5, of which only $6.5 is generated in China. The yuan's appreciation against the dollar affects only the cost generated in China. Its impact on the overall cost of the phone is insignificant. In accordance with the traditional trade statistical method, iPhones contribute to $1.9 billion in the U.S. trade deficit with China. But China is responsible for only $73.5 million in value added. It is unreasonable to hold China responsible for all value added in its manufactured products.

Liang of the UN Conference on Trade and Development said current trade statistics overestimates the competitiveness of the final assembler and exporter. China provides a telling example. China's export competitiveness is overestimated, so are trade imbalances between China and its major trade partners. It is crucial to take into consideration the impact of globalized production on trade, the implications of processing trade--importing raw materials and exporting finished products--and the distribution of value added in all segments of the value chain while conducting statistics so that trade statistics can give a more objective and comprehensive picture of the global trade pattern and a country's trade conditions, he said.

Coordinated response

In a report issued on November 23, 2011, the Paris-based Organization for Economic Cooperation and Development said a coordinated response involving macroeconomic, exchange rate and structural reforms, including trade policy reforms, are needed to address imbalances in the global economy.

"Rebalancing requires a more even distribution of sources of demand in deficit and surplus economies, with surplus countries relying more on internal demand and deficit economies focusing more on external sources of demand," said the report, titled Global Imbalances: Trade Effects and Policy Challenges.

He Weiwen said China and the United States should face up to their trade imbalances together and address them with a reasonable approach. It is unacceptable that some U.S. politicians charge China with trade protectionism and currency manipulation to meet domestic political needs. Chinese companies can invest more in the United States provided that the United States reduces barriers for Chinese investors. The United States should reflect upon defects in its export strategy, he said.

Take Sino-Japanese trade for comparison. China has a trade deficit with Japan mainly because electronic and electric products take up a large proportion of Japan's exports to China. The United States, however, exports a small quantity of these products to China. Agricultural products, industrial waste and waste paper constitute the bulk of U.S. exports to China, something that is not commensurate with the U.S. status as a powerful industrial country. It is estimated that if the United States catches up with Japan in terms of the ratio of electronic and electric products to total exports to China, U.S. exports to China will increase more than $110 billion a year. In that event, trade imbalances between the two countries will be greatly alleviated.

Scholars interviewed by People's Daily said U.S. restrictions on the export of hi-tech products to China have also hindered the growth of its exports to China. The United States should lift its export restrictions to give China access to its hi-tech products. This move will boost U.S. hi-tech exports to China and reduce its trade deficit. At the same time, they believe China should also take a series of measures to stimulate domestic demand.

Tommy Xie, an economist with Singapore's OCBC Bank, said Chinese President Hu Jintao's pledge to give equal importance to import and export to promote balanced development of international trade at a forum marking the 10th anniversary of China's accession to the WTO in December 2011 sets the tone for China's economic restructuring and strategic shift. Import should not prevail over domestic demand; instead, increasing domestic demand naturally leads to import growth, Xie said.

Hu said China's imports will likely exceed $8 trillion in the next five years. Xie believes this is good news for the world economy. China's growing domestic demand is particularly important given the spread of the European sovereign debt crisis and the stagnant demand in developed economies. Of course, increasing imports does not mean China will reduce its exports. Export remains a driver of China's economic growth as well as a major contributor to job creation.