China’s import goal at risk if economy does not maintain strong growth

China can achieve its goal of importing US$10 trillion of services over the next 15 years, but only if growth remains strong and the global trade environment is favourable, a senior Chinese Commerce Ministry official said on Tuesday.

Over the next five years, China’s imports of services could reach more than US$2.5 trillion, about half of which will be accounted for by spending on travel services, Xian Guoyi, head of the ministry’s service trade department, said at the launch of China’s first official report on services imports which took place during the China International Import Expo in Shanghai.

Of that total, spending on imported travel services – including outbound tourism, overseas education and health care – could reach US$1.4 trillion. In addition, the government expects more than US$700 billion in service imports will come from what it defines as “emerging sectors” such as intellectual property rights, telecommunications services, financial services, and personal entertainment.

In his opening address to the expo on Monday, Chinese President Xi Jinping promised China would import US$30 trillion worth of goods and US$10 trillion worth of services over the next 15 years.

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Achieving that goal requires a buoyant economic and trade environment.

“The condition [for achieving the services import goal] is that the Chinese economy does not decline much and the global trade environment is favourable,” Xian told the South China Morning Post.

However, growth slowed in the third quarter to its slowest pace since early 2009, a result of the trade war with the United States and Beijing’s effort to reduce debt in the domestic economy. Recent data indicated that activity in both the manufacturing and service sectors slowed in October, the first month of the fourth quarter.

Economists said the worst is yet to come, predicting the full force of the trade war on the Chinese economy will be felt in the first half of next year.

A significant slowdown in growth, and a continuation or even escalation of the US trade war, could ruin China’s efforts to meet its new import goals.

Since it joined the World Trade Organisation in 2001, China’s spending on outbound travel services has increased at an average annual rate of 20 per cent to reach US$254.7 billion last year, accounting for more than half of overall service imports, according to the report. Of travel services imports, more than two thirds were generated by Chinese tourists going abroad.

Beijing expects the number of outbound tourists to rise to 700 million over the next five years.

But the growth rate of travel service imports has been falling gradually since 2014, eclipsed by other sectors, such as telecommunications and information services, which grew 52.5 per cent last year. Even though IT imports only account for about 4 per cent of overall imports now, Beijing regards them as a new import growth engine, as the country joins with foreign investors to expand and improve domestic telecom services such as internet access.

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Foreign exhibitors at the Import Expo confirmed there are opportunities to sell into the Chinese market.

FPT Corporation, an IT and telecom services provider from Vietnam, opened its first sales office in Shanghai last year. Shortly afterwards, the company won an order worth several million yuan to develop software applications for Chinese carmakers, the branch’s general manager, Tran Viet Linh, said.

“Our competitive advantage compared to Chinese local providers is our cost. Costs in China, particularly in Shanghai and other [large] cities, are going up day by day. So, we hope that good quality and lower prices will give [us] a chance,” Linh said.

But travel agencies exhibiting at the expo had mixed feelings about the outlook for Chinese outbound tourism.

Given the recent depreciation of the Turkish currency, Arbeta – an agency based in Istanbul – estimated that the number of Chinese tourists visiting Turkey would double next year.

But tourism to Taiwan may not recover soon, given the chill in diplomatic ties between mainland China and Taipei since 2016 and the slowdown in the mainland economy, which has caused a drop in the number of Chinese group tours and pushed many agencies out of business.

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However, Phillis Chin, an executive from Taiwanese agency Richmond Tours, was still optimistic about Chinese tourists in the period ahead.

“China’s economy is still OK … It’s in a period of revision. So people are conservative with their spending. It depends on how long the period lasts. Compared to Taiwan’s experience, the mainland still has some demographic dividend to capture. That’s why I think China’s group tours won’t fall too much,” Chin said.

According to the Commerce Ministry, China’s service imports increased 8.9 per cent to 2.6 trillion yuan (US$400 billion) in the first three quarters of this year compared to the same period in 2017, while exports of services rose at a faster pace, gaining 14 per cent to 1.3 trillion yuan, in part because of the growth of export services in the manufacturing sector.