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Prosperity, obstacles and challenges existed side by side in China's foreign trade in the first half of 2005, the fourth year following the country's accession to the World Trade Organization.

Already the world's third largest trader, China reported a robust growth in both exports and imports. Now that the three-year post-WTO transition period is ending, however, many domestic businesses have begun to feel the impact of competition and other challenges.

Anti-dumping investigations, safeguard protection and other means of protectionism taken by worldwide trading partners, by developed countries in particular, are forcing China's policymakers and businesses to quickly adjust their international marketing strategies and shift from "quantity-worship" to quality-oriented trade.

According to the General Administration of Customs, China's foreign trade rose 23.2 percent year-on-year to 645 billion US dollars in the first six months of 2005. The figure breaks down into 342.3 billion US dollars for exports and 302.7 billion US dollars for imports, up 32.7 percent and 14 percent over the same period of 2004, respectively.

The growth rates are remarkable. Three months ago, the Ministry of Commerce projected the year's trade growth at around 15 percent - 15 percent for export and 16 percent for import.

This represented a significant slowdown from last year's growth of 35.7 percent, though the total trade volume was to top 1.3 trillion US dollars, said a report jointly released by the ministry and its research body, the International Trade and Economic Cooperation Research Institute.

In 2004, China replaced Japan as the world's third largest trader following the United States and Germany with its trade volume hitting 1.15 trillion US dollars - 593.4 billion US dollars for exports and 561.4 billion US dollars for imports.

The European Union has become China's biggest trading partner. Its bilateral trade with China grew 23.6 percent to 100.1 billion US dollars in the first half of 2005.

The Unites States and Japan take the second and third places with trade volumes of 96.3 billion US dollars and 86.5 billion US dollars, respectively.

The Association of Southeast Asian Nations, with whom China has adopted measures to facilitate the flow of trade of agricultural products under a free trade agreement between the two sides, remains China's fourth largest trade partner.

"Following China's new round of tariff reductions with the ASEAN trade block starting July 20, the bilateral trade volume is expected to witness further increases in the second half of this year," said Gao Hong, an expert with the Chinese Academy of Social Sciences.

But the coming six months may not be too rosy for China. Many analysts believe the country is bound to encounter obstacles in foreign trade and growth is set to slow down. In a warning published of late on its website, the China Chamber for Import and Export of Textiles said that some quotas for textile trade with the United States had already been used up for the entire year.

The textile issue had been haunting domestic businesses since before the global quota system ended, though the United States re-imposed quotas on seven lines of Chinese products in May. Despite several rounds of hard negotiations, China has not yet reached a much-desired EU type of agreement on the textile export issue with the United States.

Though China and the EU hammered out an agreement in June regarding an annual eight to 12.5 percent export rise for 10 lines of textile products before the end of 2007, differences still exist in bilateral trade, in export of Chinese-made work shoes, for example.

Trade frictions with worldwide trade partners come as the biggest obstacle to China's foreign trade growth, according to Vice-Minister of Commerce Yu Guangzhou.

The Chinese government is seeking to settle such frictions. Meanwhile, most domestic industry associations and exporters have come to realize that it is high time to change the growth mode and increase added value in export products. "With the conventional mode of export growth, we're selling labor-intensive products to the world market for a meager profit," said Yu.

China has to spend 21 million US dollars to import an airplane, yet sells a pair of leather shoes for just 2.5 US dollars, he said. "That means we have to export 8.4 million pairs of shoes to buy an airplane." China is accused of "flooding" the world market with its goods.

Nevertheless, it has few - if any -- globally recognized brand names. In 2003, Haier, China's leading producer of domestic appliances, is the only Chinese mainland brand rated as one of the 100 most influential worldwide for the year. (More)

China still has a long way to go to develop into a "strong" trader though it is now a "large" trader, simply because it is yet to build a competitive global sales network and develop more internationally recognized brand names.

To sharpen the competitive edge of Chinese goods, policymakers are encouraging businesses to spend more on technological innovation, research and development.

According to a circular published by the Ministry of Commerce and six other government agencies in June, China is determined to foster a number of internationally recognized name brands by 2010. By then, at least 40 percent of the country's export-oriented companies will have established their own name brands and exports of Chinese brand name products will have accounted for more than 20 percent of the country's total exports.

The circular also says that domestic businesses having established their own brand names in the international market will be given easier access to bank loans or direct subsidies by the government in support of their effort for technological upgrading, research and development of export products. These companies will also be given top priority in government procurement programs.

Meanwhile, China has stepped up training of multi-disciplinary professionals, people who are well versed in international trade, WTO affairs and law, and who are proficient in at least one foreign language. These experts are expected to effectively defend Chinese companies in international trade rows and protect their legitimate rights and interests in the world market place.

Chinese companies are also encouraged to invest in other countries.

"Foreign trade and direct investment abroad are the two pillars of an export-oriented economy," says Yang Shengming, an economist with the Chinese Academy of Social Sciences. "In China, however, the two are disproportionate."

China's foreign trade volume topped 1.15 trillion US dollars in 2004, but its investment overseas was only 30 billion US dollars.

"The US investment in other countries, however, is three times as great as its foreign trade volume. In some European countries, investment overseas is even five times their trade volume," says Yang.

Statistics from the Ministry of Commerce show China's contracted foreign investment grew by 18.99 percent in the first six months of 2005 to 86.19 billion US dollars. Actually realized foreign investment in the same period was 28.56 billion US dollars, down 3.18 percent year-on-year.