GENEVA — China may overtake the U.S. and Germany to become the world’s biggest exporter by the beginning of the next decade, according to a report by the Organization for Economic Cooperation and Development.
However, China still faces major obstacles, such as scaling down the large number of state-owed enterprises, reforming corporate law and its banking sector and curbing pervasive counterfeiting, the study said.
China’s impact on the global economy has been accentuated by “a rapidly increasing degree of openness to trade,” with exports and imports accounting for about 35 percent of the country’s gross domestic product in 2004. China’s GDP in 2004 was $7.26 trillion. The U.S. GDP was $11.75 trillion last year.
The OECD, based in Paris, is a 30-country group that includes the U.S. Its mission is to address the economic, social and governance challenges of globalization. The report drew extensively on data provided by China’s National Development and Reform Commission.
China was ranked the third-biggest exporter in 2003 behind Germany and the U.S., according to World Trade Organization data. The surge in exports, generated by huge foreign direct investment in manufacturing, along with structural reforms and economic growth that averaged 9.5 percent annually over the last two decades, is “likely to continue at that pace for some time,” the report said.
“Foreign-controlled companies dominate exports, accounting for over half of all export sales,” according to the study. “In some industries, foreign companies dominate foreign sales almost completely, though they are less active in the garment and textile industries, where domestic private companies supply most exports.”
Foreign firms’ 13 percent share of the potentially huge Chinese market compares with the 55 percent they hold of the export market, the report concluded. Changes in economic policy have played a central role in China’s transformation, the OECD said.
“Private sector dynamism has offset the initial negative impact of the downsizing of public enterprises, with overall employment now rising as a result of the growth of small and medium-sized private companies,” said Jean-Philippe Cotis, the organization’s chief economist.
In the last decade, the number of state-owned enterprises in China has been almost halved from a peak of 300,000 in 1995.
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The report lauds China’s decision to move away from the peg of the yuan to the dollar and toward a more managed float around a central rate set by a so-called basket of currencies. However, the agency said China should still pursue a more flexible exchange rate regime.
“Greater flexibility in the exchange rate would allow authorities to guard against the risk of any further increase in inflation in both product and asset markets, to more easily adapt monetary policy to domestic concerns and to allow market forces to determine interest rates to a greater extent,” the study said.
The report said enforcement of intellectual property rights “remains a major concern for both foreign and domestic firms.”
Other impediments include difficulty of entry for private entrepreneurs. Some of the problems include “long delays, lack of transparency in decisions, favoritism by local governments and pressure to pay unauthorized fees.”