- The Washington Times - Sunday, November 28, 2004

BEIJING — China’s phenomenal economic expansion, marked by record investment flows, huge increases in exports and imports, mounting foreign exchange reserves, and an endless appetite for natural resources, poses challenges and opportunities for the world economy.

Although China is many years away from matching the United States in military capabilities, the world’s most populous nation is rapidly emerging as a “strategic competitor” in the global economy, as President Bush said four years ago.

Decisions by Chinese policy-makers increasingly are sending shock waves through world financial markets and influencing fundamentals such as the price of oil, rubber, copper and soybeans, and the direction of investment flows.

Rising domestic demand in the economy of 1.3 billion people also is helping an export boom in neighboring Asian economies and countries such as Argentina, Australia, Brazil, Chile, Canada and the oil-rich states of the Persian Gulf, among others.

Liberalization of China’s services sector also offers lucrative opportunities, analysts say.

Indeed, as Alan Larson, undersecretary of state for economic, business and agricultural affairs, said, “The economic implications of China’s development as a great power are profound.”

For the United States and other economic centers such as Japan and the European Union, managing this relationship at the bilateral, regional and global level will not be easy, say analysts, because of China’s growing economic leverage.

China’s total foreign trade is expected to reach $1.1 billion this year for the first time, said Li Ruogu, deputy governor of the People’s Bank of China — the central bank. If it does, China might edge Japan out of third place among leading global traders this year.

Yi Xiaozhun, China’s assistant minister of commerce, said trade volume rose 37 percent to $851.1 billion in 2003 from the year before, and from this January to September, it increased by 36.7 percent to $828.5 billion on a year-to-year basis.

China’s National Bureau of Statistics reports that the January-September export volume this year was $416.2 billion, up 35.2 percent from the same period last year, and imports came to $412.3 billion, up 38.2 percent.

The decision by Chinese leaders in 1979 to sweep aside the communist economic model and open the economy to the outside world set off an “economic miracle” as investments poured in from the United States, the European Union and Japan.

Mr. Li said China’s economic growth in the third quarter averaged 9.5 percent, slightly below the 9.7 percent from January to March. He said foreign direct-investment inflows in the first nine months of the year were $48.7 billion, up 20 percent from the same period last year, and is expected to approach $60 billion for the year.

China is not only the world’s lowest-cost manufacturer of products such as textiles, apparel and consumer electronics, but it also is laying the foundation to propel the country as a global competitor in high-value-added areas from computer software and services to telecom equipment, aerospace and biotechnology.

Meanwhile, China’s foreign-exchange reserves at the end of September reached $514.5 billion, Mr. Li said.

But these major successes have triggered protectionist steps in the United States and elsewhere.

Top Chinese trade officials say that because of their country’s increased share of world-trade revenues, differences with major partners are bound to increase. These officials hope the differences can be managed through bilateral diplomatic channels or by recourse through dispute-resolution mechanisms of the World Trade Organization.

A surge of safeguard petitions in the United States before the liberalization of global trade in textiles and clothing on Jan. 1 has drawn a vocal reaction from Beijing. Purported undervaluation of China’s yuan currency vis-a-vis the dollar by up to 40 percent is another sensitive area.

Chinese officials insist they are moving toward a flexible regime but say they will not be influenced by external pressures.

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