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Foreign Trade Environment in China
Liping He
School of Economics and Business Administration
Beijing Normal University
23 March 2010
Contents
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China’s Foreign Trade: A snapshot
Geography and Foreign Trade
Government Policy and Regulation on Foreign Trade
Labor Market
Finance and Banking
The Exchange Rate Issue
China’s International Relations
China’s Foreign Trade:
A Snapshot
• China’s foreign trade has been growing rapidly in last three
decades, with its annual growth rates averaged at 15%
• Foreign trade, together with foreign direct investment inflow, has
served as an important “growth engine” for the Chinese economy
• China is now among largest trading nations in the world, and
perhaps the world’s top exporter (the role once occupied by Britain,
America, Germany, or Japan)
• Yet somehow different with its predecessors, China mainly relies
on its vast manpower, not necessarily on technology, in achieving
the leading role in foreign trade.
• Looking ahead, foreign trade will remain as essential for Chinese
economic growth.
China’s Trade in Goods,
$ billion, 1991-2008
1,600
1,400
1,200
Import
Export
1,000
800
600
400
200
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China’s Commodity Export,
$ billion, 1991-2008
1,600
1,400
total export
1,200
export by processing trade
1,000
800
export by foreign-funded firms
600
400
200
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Geography and Foreign Trade
(Internal)
• Nearly 4/5 China’s foreign trade ($2,562 b) takes place in
five coastal provinces
• GuangDong ($718 b), Jiangsu ($430 b), Shanghai ($314
b), Zhejiang ($242 b), and Shandong ($188 b)
• These coastal provinces are also largest ones where
foreign direct investment (FDI) flows in.
• Comparative advantages: (1) geographical position (2)
infrastructure (3) historical connections (4) regional
governments’ drive
Geography and Foreign Trade
(External)
• China’s main trading partners: EU, US, Japan, ASEAN,
Hong Kong
• Geographical diversification has been remarkably
ostensible in the recent years
• Export diversification in geography: market driven and
product competitiveness
• Import diversification in geography: resource and
technology driven
Government Policy and Regulation
on Foreign Trade
• China becomes a member of World Trade Organization from 2001,
and commits to the principle of free and fair trade
• Currently China is under negotiation with the U.S. and EU about
the Market Economy Status (MES)
• China has so far signed 20-odds bilateral FTAs with other trading
partners (latest one with ASEAN from January 2010), and has
CEPA with Hong Kong (and similar one with Taiwan)
• China has engaged a number of talks on establishing and
developing multilateral framework on trade and investment
promotion schemes, including APEC and the Doha round
Government Policy and Regulation
on Foreign Trade
• Ministry of Commerce is the Central Government agency
responsible for policy making and regulation implementing
• There are four Special Economic Zones (SEZs), and recently the
Hainan province approved as the “International Tourism Island”:
these titles give the regions some policy privileges.
• In almost every province and large city, there are “Economic
Development Zone”, where local authorities have certain discretion
over the matter of foreign trade and investment.
• Regional and local governments have strong appetite for external
development, seeking growth in foreign trade and FDI inflow.
Labor Market
• China today is in general a “labor-based economy”, not exactly a
“knowledge-based economy”.
• “Surplus labor” has been diminishing as population slows down
and non-farming employment grows rapidly.
• But recently emerges a problem of “oversupply of college
graduates”.
• Labor flexibility across regions and occupations is relatively high.
• Low flexibility mainly a problem with employment in the public
sector and state-owned enterprises (SOEs).
• New “Labor Contract Law” is introduced from 2008.
• Trade unions and social security system are under development.
Finance and Banking
• China now has fairly a competitive market structure in the
finance and banking sector.
• Five largest national banks, ten-odds regional banks, and
hundred-odds city banks.
• Full-scale foreign banks are in operation from 2006.
• Securities (issuing and trading) are also active.
• Local financing becomes increasingly accessible for
foreign firms.
The Exchange Rate Issue
• China has adopted a de facto “dollar-pegging” regime since the
mid-1990s, in a backdrop that the fight against domestic inflation
and endless devaluation expectations was running high.
• A reform on the exchange rate regime took place in July 2005,
aimed to let the RMB to have more flexibility.
• But the reform has not been so successful because China’s financial
markets and the corporate sector were not well prepared to cope
with exchange rate variability on their own.
• The recent global financial crisis had effectively made the RMB
more closely tied to the dollar than before.
• Whether and how much the RMB has been undervalued is an
intellectually debating issue.
• China would see through a gradual reform in the exchange rate
regime.
Recent Trends in Trade
100
Bil $
%
60
Trade Balance (Bil $)
Import Growth
Export Growth
75
50
50
40
25
30
c
10.01
09.11
09.09
09.07
09.05
09.03
09.01
08.11
08.09
08.07
08.05
08.03
08.01
07.11
0
07.09
-50
07.07
10
07.05
-25
07.03
20
07.01
0
International Relations
• China wishfully sees a “multi-polar world” – reluctantly sees itself
as a “superpower” or a contender.
• Foreign policy is dominated by territorial and political integrity,
which is often the cause of frictions with the US on the issue of
Taiwan, or that with Europe on the issue of Tibet.
• East Asia has been on the top priority of China’s diplomacy in the
recent years.
• Many in China would like to see to make steady progress on the
issues such as human rights, democracy, and ideology.
• Leaders of China commit themselves to “peace and development”.
International Relations - Asia
• China sees itself in the center stage of Asia
• China tries to seeks to maintain friendly and cooperative relations
with all other Asian countries as it is believed to be at the core for
overall stable international relations
• China’s relations with other Asian countries are sometimes troubled
by historical issues, border (territory) issues, and trust issues
• Notable that with two Koreas, Japan, countries neighboring the
South China See, and India.
• Economically, China’s relations with all other Asian countries have
developed remarkably over time (“Triangle relations between the
U.S., China and Asia”).
What China Exports
• China exported $1,218 billion, equivalent to 37.5% of the
country’s GDP
• Of the total exports, $617.5 billion was “processed
exports”, or $695.4 billion was undertaken by foreign
firms
• Great variety in exports
• Major “staples”: textile and clothing; metal products;
machinery and electronics; car parts; furniture and toys
What China Imports
• China imported $955.9 billion, equivalent to 29.4% of the
country’s GDP
• Of the total imports, $368.5 billion was that for
“processed exports”, or $559.8 billion was undertaken by
foreign firms
• Great variety in imports
• Major imports: fuels and other mineral products;
chemicals; plastic and rubber products; machinery and
electric equipment; advanced industrial equipment
Trade in service
(2007)
Export
Import
Balance
122,206
130,111
-7,904
1.Transport
31,323
43,270
-11,946
2.Travel
37,233
29,786
7,446
3.Telecommunication
1,174
1,081
92
4.Construction service
5,377
2,909
2,467
5.Insurance
903
10,664
-9,760
6.Financial service
230
556
-326
4,344
2,208
2,136
8.Patent and Royalty
342
8,192
-7,849
9.Consulting service
11,580
10,856
724
10.Advertizement and Publicity
1,912
1,336
575
316
153
162
26,914
18,238
8,676
552
856
-304
Total trade in service ($ million)
7.IT service
11.Filming and audio-video products
12.Other commercial service
13.Gov΄t service unrecorded elsewhere
Thank You!