International Trade In China Economics Essay

In the current essay I would like to consider trade issues and the trade policy of China over a couple of decades. To begin with it should be noted that China – is one of the major world powers nowadays, its territory is home for over 21% of the world’s population. As a fact, China’s economy is characterized by persistently high rates of development. The most developed form of foreign economic relations in China is international trade. It can be said that the share of China in world trade over the period from 1978 to 2009 has increased rapidly and today is about 8% (in comparison with 0,75% in 1978).

According to Alan Winters, Shahid Yusuf (2007), volume of import in China in 2009 was about 921.5 billion U.S. dollars and China is on the fourth place in the world by this indicator. Moreover, China’s export volume in 2009 amounted to 1.194 trillion U.S. dollars and this figure continues to grow. In general, in production of certain goods, such as coal, textile, refrigerators, cars, bicycles China ranks first in the world and has second place in the production of electricity. Of course, with the traditional industries in China is developing electronics, aerospace, automotive industries. It should be noted that the element of the Chinese mentality is the idea of ​​a gradual transformation of China into leading economic power of the XXI century.

It can be said that the features of contemporary world development are inextricably linked with processes that occurred in developing countries that make up the majority of the world. As a fact, the center of economic growth in the global economy has become East Asia region. To largest economic powers in the world entered China, whose GDP in the 1980-90-ies has increased annually by 10%. Moreover, the dependence on import of Chinese economy has increased to the 10% in 1996 and 15% in 2009, which indicates a fairly deep involvement of China in international economic relations, according to David Barboza (2011).

Today, one of the major tasks of China’s international trade is the acquisition of equipment and technology for economic development. It can be said that the joining the World Trade Organization in November 2001 was essential to China. In this regard, China’s international trade has shifted away from purchasing complete sets of equipment to the procurement of key equipment and soft technologies (patents, licenses, etc.), since in this case, the acquisition of equipment and technology gives China an opportunity on the basis of reconstructed enterprises establish its own production of advanced products, and ultimately reach a higher level of technological development. Thus, in the period from 1995 to 2005, the number of imported equipment and the cost of licensing agreements have increased 25 times in comparison with the previous decade. As a result, the dependence of Chinese industry from import increased significantly. In particular, the highest value of import was for the automotive, aircraft, iron and steel industry. Through imports and technology was provided by about 60% of the growth of industrial production and domestic market received more than 8 thousand items of new products, according to Restructuring and further trade liberalization are keys to sustaining growth (2010).

Also, in China international trade there have been important shifts in the commodity structure of export. As a fact, China’s export significantly increased the proportion of finished industrial products (textiles, electronics products, machine-building industry). In the first place (about 50%) occupied the industrial consumer goods: cotton, Tacna, clothing, footwear, toys, etc. Nowadays, the country ranks first in the world in export of cotton and silk. Textile industry is a vital source of foreign exchange earnings of the PRC. At the same time, textiles – is one of the most painful issues in trade relations with industrialized countries. Fearing the rapid growth of imports of Chinese textile products on their domestic markets, several countries have demanded China to restrict their import. In particular, the United States in the scope of the restrictions included 75% of the textile industry, which has raised fears for the domestic producers within the U.S. However, despite the increase in import quotas imposed by the United States, China holds first place among the major suppliers of textile products to the U.S. market. As well as the export of traditional types of products, China has consistently promoted the export of new categories and improves the quality of the traditional products that are subject to limitations, with the aim to increase their cost, and without increasing the quantity, China bypasses such restrictions, according to A Study on the Sustainable Development of Foreign Trade in China (2010).

It can be said that the engineering and electrical products account for at least 20% of China’s export. In particular China provides the export of metal processing machinery, shipbuilding equipment, bicycles and household appliances. Although, penetration of these products in world markets is constrained low quality, after-sales service capabilities can not compete with other suppliers of these products yet, among which are Taiwan and South Korea. The share of Chinese machine building in world export is less than 0.6%. Also, the dependence of some sectors of export is quite significant. The highest value of export has the textile industry: cotton textile industry (52%), the silk industry (65%) and light industry (45%), according to David Barboza (2011).

It should be noted that sign several bilateral agreements in international trade led to the situation that international trade of China is dominated by the industrialized Western countries, which share in 2005 accounted for 58% of China’s international trade. China’s major trading partners are Japan, USA, and European Union. As a fact, these countries accounted for more than 70% of procurement technology and 90% of technical documentation and know-how. The bulk of China’s purchases of machinery, equipment abroad is accounted by Japan, because of geographical proximity and active export promotion policies pursued by the Japanese government, which provides funding for procurement of China on preferential terms, which helps to pay for expensive import. The share of Japan accounts about 50% of China’s purchases of machinery and equipment. A special place among the leading partners of China has Hong Kong. It can be said that Hong Kong has become the leading re-export base of Chinese goods to the markets of Western countries. About 30% of re-exported through Hong Kong goods go to the USA, Western Europe and Japan, according to China’s economic blueprint (2011).

Without any doubts, with entering the World Trade Organization China received the opportunity to enter the markets of developed countries. As a result, in 2009 China ranked second worldwide in terms of merchandise exports after the U.S. Moreover, the U.S. became major trade partner of China with its demanding and insatiable market. Currently, net export of China to the United States came close to $ 170 billion and continues to grow, strengthening, on the one hand, the position of American protectionists; on the other hand, it is arranging a U.S. consumer: an abundance of cheap Chinese goods in the consumer market is a serious obstacle in the development of inflation and price increasing. In turn, the U.S. multinational companies provide a significant share of foreign investments in the Chinese economy, because of cheap labor force in China, according to Alexander Yeats (2008).

In other words, open foreign policy played a significant role in the mechanism of China’s economic growth, which is on the line to defend their positions in the international division of labor. Today, international trade is the main element of Chinese economy, which over the years of reform had fairly high growth rates – around 16% per year, while international trade volume grew more than 15 times, with $ 20.6 billion China has moved on this parameter from 32th position to one of the leading places in the world on this indicator. Before the economic reforms the share of export in the country’s GNP was 4 – 5%, in the mid- 1990’s – more than 20%. The main trade partners of China’s exports are the United States – 21.0% of total exports (approximately U.S. $ 125 billion), Hong Kong (Special Administrative Region of China, but the source of statistical information is regarded as an export route) – 17% ($100 billion), Japan – 12.4% ($ 74 billion), South Korea – 4.7% ($ 28 billion) and Germany – 4.0% ($ 24 billion dollars). The main trade partners of China’s import are Japan – 16.8% of total imports (about $ 94 billion), Taiwan – 11.5% ($ 65 billion), South Korea – 11.1% ($ 62 billion), USA – 8.0% ($ 45 billion) and Germany – 5.4% ($ 30 billion). In other words, China has actively joined the international trade and actively fills the free economy of the partner countries on international trade, thanks to cheap labor force, investments in intangible assets and passing from the producer of cheap and poor quality of everyday products into one of the largest producers of high quality products, competing with such giants as Japan, South Korea and the U.S., according to A Study on the Sustainable Development of Foreign Trade in China (2010).

As it was shown by recent statistics published by the General Administration of Customs of China, on March 2009 the international trade turnover, export and import of China were declined by 20.9, 17.1 and 25.1 percent in comparison with the same period of 2008. However, on October 2008, China still had the comparatively rapid growth of foreign trade, but due to the worsening global financial crisis, the situation has changed dramatically. In order to overcome the crisis, the Chinese government has launched a number of measures to promote export expansion. These measures included providing financial support to enterprises, the settlement tax returning on export, promoting the implementation of products targeted for export and to the domestic market.

Although labor-intensive products, which made in China, are still popular in the international market, a sharp drop of export of engineering products and electronics out of the country, which in March 2009 was 18.8 percent, resulted in a decrease in the gross volume of Chinese export. Also, such factors as reducing the demand of foreign customers, a revaluation of the national currency of China, the difficulties in the financial sector and the presence of protectionism in international trade prevent the expansion of Chinese exports under the current circumstances. With the aim to overcome this situation Chinese Ministry of Commerce on April 18, 2010 issued research report entitled “Development Strategy of China’s international trade in the post-crisis period”, in which the task is stable development of Chinese foreign trade for the next decade to further long-term and, doubling the volume of trade in goods and services, continuing efforts to ensure a balanced development of import and export, according to China’s economic blueprint (2011).

According to experts, the report provides a theoretical foundation on which in the near future will be deployed to reform of trade policies, systems and mechanisms. The final recovery of international trade of China was seriously reduced during the global financial crisis, and full recovery can be expected in 2-3 years. Such long period of recovery from the consequences of financial crisis caused by the fact that there remain the tendencies of world instability, in particular, high unemployment and a reduction in savings in several developed countries. At the same time the report indicates that the measures taken by the authorities to stimulate domestic demand have proved their efficiency and increased domestic consumption in 2009, which exceeded the figure of falling export.

It should be noted that in 2009, Chinese export has decreased by 16%, while decrease in import was only 11.2%. This fact can be explained by the growth of consumer activity in the domestic market, as well as further “opening” of China. Fall in international trade in China, especially a significant decline in exports was the first reaction of the Chinese economy at the outbreak of the fall of 2008 the global financial crisis. In fact, the first evidence of the return of the export trade to the pre-crisis level has appeared in January 2010. According to the State Administration of Customs of China in January 2010, exports grew by 21% compared to the same period of the 2009 and amounted to $ 109.5 billion. In turn, import, according to State Administration of Customs in January rose by 85% over the same period of 2009 to $ 95.3 billion. This report shows that in the coming years the international trade in China will continue to play a leading role in promoting economic growth and employment, strengthening the country’s position in the international arena, according to Jingjing Xu (2004).

In general, global financial crisis has revealed a number of problems in the international trade of the country, such as the imbalance in its structure, the negative impact of the old forms, the deterioration of conditions for expanding trade, increasing trade friction, etc. In 2009, China’s international trade turnover amounted to 2.2 trillion U.S. dollars, down 13.9 percent from the previous year. According to the report, by 2020 China will strengthen its position as a major trading country in the world and by 2030 should become the largest trading nation. With the aim to achieve these goals, in the future, China will continuously adjust and improve its trade policy in terms of fees, forms, trade, import, trade in services, etc. The measures of Chinese authorities to stabilize and develop international trade are effective and very promising for further development of international trade and cooperation with other countries in the economic sphere. In next 10 years China could become a major player in the international trade arena, competing successfully with the current leaders, according to Alexander Yeats (2008).

As a matter of fact, China signed a number of trade agreements, which allowed the country to enter the market of developed countries and significantly increase its export potential. It should be noted that China maintains economic and trade relations with 182 countries and regions, with 80 of them China signed intergovernmental trade agreements and protocols. 

In January 1979, China and the United States formally established diplomatic relations. In July of that year between the governments of both countries signed an “Agreement on trade relations between China and the U.S.”, according to which the parties have mutually granted status as the most favorable country. 

October 1992, China and the U.S. signed a Memorandum of Understanding between the Governments of China and the U.S. Government on market access. In recent years, China has almost fulfilled all obligations stipulated in the memorandum; it has implemented a series of active measures in line with the reforms and opening of China. 

The USA – China trade deal signed in 1999 provided increased access for Chinese and U.S. export across a broad range of commodities and elimination of barriers between countries. Commitments included significant cuts in tariffs that were to be completed by January 2004. China’s commitments will eliminate broad systemic barriers to U.S. exports, such as limits on who can import goods and distribute them in China as well as barriers such as quotas and licenses that restrict imports of U.S. products. 

November 2001 – China joins the World Trade Organization.

November 2004 – China signs trade agreements with ten south-east Asia countries. The result of this agreement is creation of a free-trade zone, which would unite 25% of the world’s population.

To sum it up I would like to say that in past decades China has become one of the leaders in international trade. It should be noted that this contributed to a number of trade agreements, signed by China, which allowed the country to enter the markets of developed countries. Moreover, the key factor in the development of international trade in China was the entering to the World Trade Organization in 2001. This allowed the country to develop trade relationships with many countries all over the world and significantly increased Chinese export.

Thus, developing countries in the past few years have become a real locomotive of world economy. In particular, if the world production of goods and services in general has increased in 2004 by 5.1%, developing countries with increased their GDP in the same year by 6.6%. Phenomenon of recent years has been the most rapid increase in foreign direct investment from developing countries sent in developed as well as in other developing countries. So, according to the World Bank, the amount of foreign direct investment from developing countries rose from $ 16 billion in 2002 to about $ 40 billion in 2004. This shows a tendency to further sustainable development of developing countries, such as China, India, Brazil, Russia, Indonesia and so on. Advances of Chinese economic development can be expressed in the growth of industrial production and employment in this country. Today, China became the global leader in the production of many types of products. For example, China is the world leader in the production of coal, steel, cement, grain, meat, cotton and also has leading positions in oil and electricity production.