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Chapter 12
The ruins of an ancient watchtower, located in Dunhuang, Gansu province
(Copyright © The Real Bear, January 27, 2008)
12. International Economic
Engagement
12.1 Historical background
12.2 Toward an open economy
12.3 Foreign trade
12.4 Understanding China’s trade
performance
Keywords:
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•
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•
•
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•
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open-door policy,
outward development strategy,
special economic zone (SEZ),
coastal economic development zone,
World Trade Organization (WTO),
foreign trade,
currency convertibility,
trade surplus
12.1 Historical background
12.1.1 How autarkic was China?
12.1.2 External influences
Haijin (ban on maritime voyages):
• The export of cereals and five metals (gold, silver, copper,
iron and tin) were strictly prohibited;
• private trade and contacts between Chinese and foreign
businessmen were illegal;
• ‘At most ten foreigners may take a walk together near
their hotel on the 8th, 18th and 28th days a month’,
‘Overseas businessmen should not stay in Guangdong in
winter’, and ‘Women from foreign countries are
prohibited to enter this country’;
• Chinese businessmen going abroad were subject to the
conditions that ‘At most one liter of rice may be carried
by a seaman a day’ and ‘At most two guns may be
installed in a ship’;
• Manufacture of seagoing vessels of more than 500 dan
(hectoliters) in weight and eight meters in height was
prohibited.
China’s frontier and boundary
conditions:
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•
•
•
•
•
•
•
•
Gansu (with Mongolia, 65 km)
Guangxi (with Vietnam, 1,020 km)
Heilongjiang (with Russia, 3,045 km)
Inner Mongolia (with Mongolia, 3,640 km; and Russia,
560 km)
Jilin (with North Korea, 870 km; and Russia, 560 km)
Liaoning (with North Korea, 546 km)
Tibet (with India, 1,906 km; Nepal, 1,236 km; Bhutan,
470 km; and Myanmar, 188 km)
Xinjiang (with Russia, 40 km; Mongolia, 968 km;
Pakistan, 523 km; Kazakhstan, 1,533 km; Kyrgyzstan,
858 km; Tajikistan, 540 km; Afghanistan, 76 km; and
India, 1,474 km)
Yunnan (with Myanmar, 1,997 km; Laos, 710 km; and
Vietnam, 1,353 km)
12.2 Toward an open
economy
12.2.1 An overview
12.2.2 WTO membership
12.2.3 Tariff and non-tariff
barriers
12.2.4 Currency convertibility
China’s commitments:
• China will provide non-discriminatory treatment to all WTO
Members.
• China will eliminate dual pricing practices as well as
differences in treatment accorded to goods produced for sale
in China in comparison to those produced for export.
• price controls will not be used for purposes of affording
protection to domestic industries or services providers.
• the WTO Agreement will be implemented by China in an
effective and uniform manner by revising its existing
domestic laws and enacting new legislation fully in
compliance with the WTO Agreement.
• Within three years of accession all enterprises will have the
right to import and export all goods and trade them
throughout the customs territory with limited exceptions.
• China will not maintain or introduce any export subsidies on
agricultural products.
9.0
8.0
7.0
5.0
4.0
3.0
2.0
Year
Source: NBS, various years.
Figure 12.1 China’s RMB exchange rates (1980 – 2011)
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
0.0
1982
1.0
1980
¥/US$
6.0
Table 12.1 China’s declining tariffs (%), 1982–2002
Year
Unweighted
Weighted
average
average
1982
55.6
...
1985
43.3
...
1988
43.7
...
1991
44.1
...
1992
42.9
40.6
1993
39.9
38.4
1994
36.3
35.5
1995
35.2
26.8
1996
23.6
22.6
1997
17.6
16.0
1998
17.5
15.7
2000
16.4
...
2001
15.3
9.1
2002
12.3
6.4
Source: Rumbaugh and Blancher (2004)
Dispersion
(SD)
...
...
...
...
...
29.9
27.9
...
17.4
13.0
13.0
...
12.1
9.1
Max
...
...
...
...
220.0
220.0
...
220.0
121.6
121.6
121.6
...
121.6
71.0
12.3 Foreign trade
12.3.1 Foreign trade regime in
transition
12.3.2 China’s trade
performance
13.3.3 Structural changes
Source: NBS, various years.
Figure 12.2 China’s foreign trade as percentage of GDP, 1950-2010
Notes: (1) Data are as of 2008. (2) Hong Kong’s share includes re-exports.
Source: NBS, various years.
Figure 12.3 China’s major trading partners
Source: NBS, various years.
Figure 12.4 Foreign trade surplus (deficit) as percentage of total trade
Notes: (1) Data on “ratio of trade to GDP” are based on NBS
(2002). (2) Data on “distance to nearest coastal port” are estimated
by the author based on the locations of China’s 31 provincial
capitals.
(a) Foreign trade versus distance in China
(b) Which countries match the exports of Chinese provinces?
Figure 12.5 The spatial pattern of foreign trade in China
Notes to Figure 12.5 (b):
(1) The equivalents include: Austria=Shanghai, Bahrain=S
ichuan, Belize=Tibet, Benin=Ningxia, Bosnia and
Herzegovina=Shaanxi, Botswana=Jilin, Colombia=Tianjin,
Congo=Hunan, Costa Rica=Henan, El Salvador=Inner
Mongolia, Gabon=Guangxi, Greece=Hebei, Hungary=
Shandong, Jordan=Heilongjiang, Latvia=Jiangxi, Lebanon
=Chongqing, Libya=Liaoning, Mongolia=Hainan, Namibia
=Yunnan, Nepal=Gansu, Nigeria=Fujian; North Korea
=Guizhou, Oman=Beijing, Panama=Macau, Rwanda=
Qinghai, Serbia=Anhui, Shanxi=Iceland, South Korea=
Guangdong, Sri Lanka=Hong Kong, Taiwan=Jiangsu,
Thailand=Zhejiang, Trinidad and Tobago=Hubei, and
Uzbekistan=Xinjiang.
(2) Figures are in US dollars and as of 2010.
(3) The data of Hong Kong and Macau exclude re-exports.
Source: NBS, various years.
Figure 12.6 Shares of manufactured commodity imports and exports (%)
Table 12.2 Shares in world exports of major economies (%),
1960 – 2010
1960
China
1970
1980
1990
2000
2010
...
...
1.0
1.9
3.9
10.4
USA
19.4
15.3
12.0
11.6
12.1
8.4
Germany
10.7
12.1
10.5
12.1
8.6
8.3
3.7
6.7
7.1
8.5
7.5
5.1
Japan
Sources: Rumbaugh and Blancher (2004) and WTO (2011).
Table 12.3 China's crude oil imports by origin (%)
Origin
Middle East
Russia/Central Asia
Atlantic basin
Asia Pacific
Africa
Others
Total
1990 1997 2005 2006 2008 2010
39.0 48.0 46.0
44.0
46.0 46.0
- 11.0
11.0
10.0 10.0
- 23.0
5.0
3.0
3.0
60.0 26.2
8.0
4.0
0.0 16.7
32.0
23.0 22.0
0.0
9.6 12.0
4.0
18.0 19.0
100.0 100.0 100.0 100.0 100.0 100.0
Notes: (1) Atlantic Basin in 2010 is from Brazil. (2) The data are
compiled from different sources: China General Administration of
Customs (2005), U.S. Energy Information Agency (IEA) and FACTS
Global Energy (2008).
Source: Zhang (2011).
12.4 Understanding China’s
trade performance
12.4.1 Methodology
12.4.2 Estimated results
This section is only prepared for graduate students. See Annex
for details about the methodology. A more comprehensive
research paper (Chapter D) is available at the companion site:
http://www.elsevierdirect.com/companions/9780123978264
Table 12.4 Determinants of foreign trade, China and East Asia
Explanatory variable
East Asia
China
1985
1995
1985
1995
-15.220
-17.282
-29.303
-2.122
Constant
(2.823a)
(1.666a)
(1.225a)
(7.664)
1.081
1.162
1.236
1.418
ln(GDPiGDPj)
(0.065a)
(0.032a)
(0.027a)
(0.166a)
0.145
0.722
0.868
-0.689
ln(GDPPCiGDPPCj)
(0.117)
(0.059a)
(0.047a)
(0.330b)
-0.423
-1.440
-0.648
-1.364
ln(DISTANCEij)
(0.218b)
(0.147a)
(0.103a)
(0.631b)
2.600
-9.048
2.860
14.375
LANGAUGEij
(1.017a)
(2.096a)
(0.862a)
(4.432a)
5.919
0.192
1.242
-26.770
RELIGIONij
(4.069)
(0.410)
(0.330a)
(11.358b)
R square
0.570
0.633
0.489
0.770
F-statistic
425.917
841.41
22.737
98.54
Number of observations
1612
2446
124
152
Notes: All regressions are based on ordinary least squares (OLS). Dependent variable is
the natural log of bilateral trade (sum of exports and imports) in 1984 (since many East
Asian economies suffered from bad recessions in 1985). Figures within parentheses are
standard errors. “a” and “b” denote statistically significant at the 1% and 5% levels,
respectively.
Source: Guo (2007) for “East Asia” and estimated by the author for “China”.
Table 12.5 The growing role of ‘Chinese’ in foreign trade
Explanatory variable
Constant
ln(GDPiGDPj)
ln(GDPPCiGDPPCj)
ln(DISTANCEij)
RELIGIONij
BAHASA
CHINESE
ENGLISH
KHMER
THAI
R square
F-statistic
Number of observations
Intra-regional trade
1985
1995
-46.816
(4.716a)
1.147
(0.126a)
1.313
(0.219a)
1.069
(0.288a)
2.697
(1.659)
1.893
(1.036c)
0.056
(0.694)
1.734
(0.710b)
6.806
(2.277a)
-3.406
(4.114)
0.565
19.341
143
-39.547
(3.079a)
1.107
(0.079a)
1.093
(0.169a)
0.601
(0.210a)
2.332
(0.901b)
1.478
(0.753b)
1.755
(0.483a)
-0.419
(0.527)
5.922
(1.191a)
-1.211
(1.137)
0.641
48.71
255
Inter-regional trade
1985
1995
-12.519
(2.232a)
1.148
(0.034a)
0.642
(0.063a)
-1.795
(0.217a)
-0.206
(0.419)
Excl.
-33.077
(1.833a)
1.260
(0.029a)
0.742
(0.053a)
-0.112
(0.178)
0.454
(0.360)
Excl.
0.529
(0.641)
0.258
(0.218)
Excl.
1.012
(0.383a)
0.679
(0.159a)
Excl.
Excl.
Excl.
0.569
322.188
1468
0.625
605.96
2190
Notes: All regressions are based on ordinary least squares (OLS). Dependent variable is the
natural log of bilateral trade (sum of exports and imports) in 1984 (for 1985’s regressions)
and 1995 (for 1995’s regressions). Hong Kong is excluded from regressions in 1985. Figures
within parentheses are standard errors. ‘Excl.’ denotes the left-hand variable is deleted from
the analysis since it has missing correlation. “a”, “b” and “c” denote statistically significant at
the 1%, 5% and 10% levels, respectively.
Source: Guo (2007).
Chapter conclusion:
The Chinese economy has been transforming from the
autarkic to an outward-oriented pattern. The open-door
policy was first implemented in the coastal area in the early
1980s, resulting in a rapid economic growth for China and
the eastern belt in particular. In the early 1990s, China
embarked on another outward-looking policy to promote
the cross-border trade and economic development of the
inland frontier area. China has been industrializing and is
becoming a major exporter of manufactured goods. China’s
efforts on economic internationalization have greatly
benefited every sphere of Chinese life. The Chinese
government has attempted to adjust further its economic
policies so as to meet gradually the needs of the
multilateral trading system. Since China joined in the
WTO, the Chinese economy has become freer and more
internationalized. But many pressing issues still exist.
Suggested reading
Chen, Feng (2010). “Trade Unions and the Quadripartite Interactions in
Strike Settlement in China,” The China Quarterly, Volume 202, pp.
104 - 124.
Devadason, Evelyn S. (2011). “Reorganization of Intra-ASEAN 5
Trade Flows: The ‘China Factor’,” Asian Economic Journal,
Volume 25, Issue 2, pp. 129–149.
Feenstra, Robert, C (1999). “Discrepancies in International Data: An
Application to China-Hong Kong Entrepot Trade,” American
Economic Review, Volume 89, Issue 2, May.
Gochoco-Bautista, Maria Socorro and Dennis S. Mapa (2010).
“Linkages between Trade and Financial Integration and Output
Growth in East Asia,” Asian Economic Journal, Volume 24, Issue 1,
pp. 1–22.
Goldstein, M., and Lardy, N. (2006). “China's Exchange Rate Policy
Dilemma,” American Economic Review, Volume 96, pp. 422-26. .
Goldstein, Morris and Nicholas Lardy (2006). “China's Exchange Rate
Policy Dilemma,” American Economic Review, Volume 96, Issue 2.
Suggested reading
Guo, Rongxing (2007). “Linguistic and Religious Influences on
Foreign Trade: Evidence from East Asia,” Asian Economic Journal,
Volume 21, Issue 1, pp. 101–121.
He, Yin (2007). “Who is Better Off from Trade Liberalization? An
Experience from Urban China,” Asian Economic Journal, Volume
21, Issue 3, pp. 283–299.
Kim, Joon-Kyung, Yangseon Kim and Chung H. Lee (2006).
“Trade, Investment and Economic Interdependence between
South Korea and China,” Asian Economic Journal, Volume 20,
Issue 4, pp. 379–392.
Lardy, N.R. (2005). “Exchange Rate and Monetary Policy in
China,” The CATO Journal, Volume 25, pp. 41-47.
McKinnon, Ronald (2006). China's Exchange Rate Trap: Japan
Redux?” American Economic Review, Volume 96, Issue 2.
Mehrotra, Aaron N. (2007). “Exchange and interest rate channels
during a deflationary era—Evidence from Japan, Hong Kong and
China,” Journal of Comparative Economics, Volume 35, Issue 1, pp.
188-210.
Suggested reading
Palley, T. (2004). External Contradictions of the Chinese Development
Model: Why China Must Abandon Export-led Growth or Risk a
Global Economic Contraction. Working paper, University of
Massachusetts.
Qin, Julia Ya (2007). “Trade, Investment and Beyond: The Impact of
WTO Accession on China's Legal System,” The China Quarterly,
Volume 191, pp. 720 - 741.
Rauch, J.E. and V. Trindade (2002). “Ethnic Chinese Networks in
International Trade,” Review of Economics and Statistics, Volume
84, Issue 1, pp. 116-30.
Rodrik, Dani (2010). “Making Room for China in the World Economy,”
American Economic Review, Volume 100, Issue 2.
Wang, Tao (2005). ”Sources of real exchange rate fluctuations in
China,” Journal of Comparative Economics, Volume 33, Issue 4, pp.
753-771.
Yu, Wusheng and Søren E. Frandsen (2005). “China's WTO
Commitments in Agriculture and Impacts of Potential OECD
Agricultural Trade Liberalizations,” Asian Economic Journal,
Volume 19, Issue 1, pp. 1–28.