Philippine trade and investment promotion efforts should focus on China, to whom the United States of America is heavily in debt. Holding more than a trillion US dollars in US debt papers in its dollar reserves of over 2 trillion dollars, China's decision on these dollar holdings will not only affect the global economy but, more important, the US economy. We can see the power of China in the Obama administration's continuing efforts to woo its leaders, including having only a private, low- key meeting between the Dalai Lama and Barack Obama.
These dollar reserves and continuing exports earning more dollars ($156.6-billion merchandise trade surplus for the last 12 months, ending June, 2010) have led to calls for China to revalue its yuan.
Economists have pointed to China's refusal to allow the yuan to appreciate as one of the biggest causes of distortion in the world economy and suggested that a stronger yuan would ease China's inflation malaise. This is not a recent concern. I remember that as far back as the IMF-World Bank meeting in Dubai, a team of Chinese researchers visited me to ask my views on the then mounting call for a yuan appreciation. Tracing the high dollar reserves of China as the main reason, I suggested that China should bring down these reserves by buying more from other countries and increasing its investments, especially in the developing countries.
Economic and financial indicators indicate that China may be doing that - buying more than it is selling to the world. While exports grew by 21% early this year, its imports soared by 85.5% in the same period. Its trade surplus also shrank to $14.2 billion from $18.4 billion in December 09. OECD's latest economic survey of China projects China's current account surplus to decline to 5.4% of GDP in 2010, from 11% in 2007, and 9.8% in 2008. In fact as of the first quarter, it was 4.1% of estimated GDP for 2010.
China's huge domestic market, encouraged by a changing Chinese leadership stance of consumption rather than savings, would be a substantial magnet for Philippine products. It could go beyond bananas, which I helped open up in the trade negotiations with Madam Wui in 1996, and encompass a wide variety of agricultural exports. The popularity of Oishi snacks in China is an encouraging sign for Filipino business. Philippine creativity in furniture design and clothes could have a ready market in Chinese buyers who are becoming more fashion-conscious. Already, there are malls in China owned by Filipino businessmen that could be the entry point for displays of Philippine-made products.
Government must get together with Philippine business to conceptualize and implement an integrated and sustained trade promotion program on a competitive agricultural and manufacturing base. China through its foreign investments could help establish and strengthen this Philippine competitive advantage. It has shown interest in investing in the agricultural plantations and natural resources extractive industries. However, Chinese funding should be directed to the full cycle of the industry sector to avoid selling to China only raw materials and semi-processed products. In agriculture, rather than planting and harvesting rice, it could proceed to cereal products. In mining, rather than nickel and copper ore sales, it could stretch to metal products manufacture.
The P-Noy administration should not be wary of linking up with China even if some of the alleged anomalous deals of the previous regime involved Chinese firms. With the ASEAN-China free trade agreement, there is greater urgency for the Philippines to look to China for trade and investment partnership.
Business Bits. The July inflation rate of 3.9% will make the Monetary Board keep its policy rates unchanged and still at record low levels, which should be good for business and industry. Hopefully the fiscal side will not undertake a borrowing binge which may kick interest rates up.
